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    WACC calculations and pro-forma balance sheet

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    k = W1Kd + W2Kp + W3Ke

    1. A firm's current balance sheet is as follows:
    Assets $100 Debt $10
    Equity $90
    a. What is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information?

    Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital
    0% 8% 12% ?
    10 8 12 ?
    20 8 12 ?
    30 8 13 ?
    40 9 14 ?
    50 10 15 ?
    60 12 16 ?

    b. Construct a pro forma balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with the firm's current balance sheet. What course of action should the firm take?
    Assets $100 Debt $?
    Equity $?

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    https://brainmass.com/business/weighted-average-cost-of-capital/wacc-calculations-and-pro-forma-balance-sheet-205005

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    1. A firm's current balance sheet is as follows:
    Assets $100 Debt $10
    Equity $90
    a. What is the firm's weighted-average cost of capital at ...

    Solution Summary

    This solution provides WACC calculations and a pro-forma balance sheet.

    $2.19

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