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fm17 10 - r sL = 11 5(0.6($10,000,000/$2,727,273 = 22.00...

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d. At D = $0: r s = 11.0%. WACC = 11.0%. At D = $6 million: V L = V U + TD = $8,727,273 + 0.4($6,000,000) = $11,127,273. r sL = r sU + (r sU - r d )(1 - T)(D/S) = 11% + (11% - 6%)(0.6)($6,000,000/$5,127,273) = 14.51%. WACC = (D/V)r d (1 - T) + (S/V)r s =($6,000,000/$11,127,273)(6%)(0.6) + ($5,127,273/$11,127,273)(14.51%) = 8.63%. At D = $10 million: V L = $8,727,273 + 0.4($10,000,000) = $12,727,273.
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Unformatted text preview: r sL = 11% + 5%(0.6)($10,000,000/$2,727,273) = 22.00%. WACC = ($10,000,000/$12,727,273)(6%)(0.6) + ($2,727,273/$12,727,273)(22%) =7.54%. Summary: (in millions) D V D/V r s WACC $ 0 $ 8.73 0% 11.0% 11.0% 6 11.13 53.9 14.5 8.6 10 12.73 78.6 22.0 7.5 Answers and Solutions: 17 - 10 15 14 13 12 11 10 9 8 Value (Millions of Dollars) D/V (%) 25 50 75 100...
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