Impact on WACC
Not what you're looking for?
A firm has determined its cost of each source of capital and optimal capital structure, which is composed of the following sources and target market value proportions:
Source of Capital Target Market Proportions After-Tax Cost
Long-term debt 45% 5%
Preferred stock 10 14
Common stock equity 45 22
If the firm were to shift toward a more leveraged capital structure (i.e., a greater percentage of debt in the capital structure), the weighted average cost of capital would? Explain your answer.
Purchase this Solution
Solution Summary
The solution explains the impact on the Weighted Average Cost of Capital (WACC) if the firm moves to a more leveraged capital structure.
Solution Preview
The answer is it will increase because an optimal capital structure implies that the Weighted Average Cost of Capital (WACC) is the minimum. We calculate the WACC at various capital structures and where the WACC is the minimum that ...
Purchase this Solution
Free BrainMass Quizzes
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Operations Management
This quiz tests a student's knowledge about Operations Management
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.