Unformatted text preview: b = b U [1 + (1 – T)(D/E)]. b These r s estimates were calculated using the CAPM, r s = r RF + (r M – r RF )b. c These WACC estimates were calculated with the following equation: WACC = w d (r d )(1 – T) + (w ce )(r s ). The firm’s optimal capital structure is that capital structure which minimizes the firm’s WACC. Elliott’s WACC is minimized at a capital structure consisting of 40% debt and 60% equity. At that capital structure, the firm’s WACC is 11.45%....
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- Spring '08
- Finance, Modigliani-Miller theorem, Weighted average cost of capital, rM – rRF