Explore BrainMass
Share

Explore BrainMass

    weighted-average cost of capital with Various Combinations

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Test: Basic Finance: A Introduction to Financial Institutions, Investments and Management. Chapter 21; page 396; problem #3.

    "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 deb and equity, given the following information?

    etc.

    © BrainMass Inc. brainmass.com May 20, 2020, 6:08 pm ad1c9bdddf
    https://brainmass.com/business/weighted-average-cost/weighted-average-cost-capital-various-combinations-262321

    Solution Preview

    Basic Finance: A Introduction to Financial Institutions, Investments and Management. Chapter 21; page 396; problem #3.
    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% 12%
    10% 8% 12% 11.60%
    20% 8% 12% 11.20%
    30% 8% 13% 11.50%
    40% 9% 14% 12%
    50% 10% 15% 12.50%
    60% 12% 16% 13.60%

    cost of capita (k) = (weight) ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what is the firm's weighted-average cost of capital at various combinations of deb and equity, given the following information.

    $2.19

    ADVERTISEMENT