week 5 weighted average cost of capitol

week 5 weighted average cost of capitol - What course of...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 5 Individual Assignments – due Monday Nov 15 2010 Be sure to read Chapters 21 of Mayo, H.B. (2007), Basic finances: An introduction to financial institutions, investments, Individual Assignment – Weighted Average Cost of Capital Be sure to cite any references you use to solve these questions. 1. The after-tax cost of debt and the cost of equity as follows for a firm at various percentages of debt in its capital structure. Calculate the firm’s weighted average cost of capital at each combination of debt and equity: Debt / Assets After-Tax Cost of Debt Cost of Equity Weighted Average Cost of Capital 0% 6% 10% ? 10% 6% 10% ? 20% 7% 10% ? 30% 8% 11% ? 40% 9% 13% ? 50% 10% 14% ? 60% 12% 16% ? 2. A firm’s current balance sheet is as follows: Assets $100,00 0 Debt $10,000 Equity $90,000 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.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: What course of action should the firm take? 3. Explain what happens to a firm’s weighted average cost of capital when there is no debt, when they first introduce some debt into the capital structure, and as the firm continues to increase the percentage of debt in the capital structure. The next question goes with the table below 4. Compute the Canadian dollar/yen spot rate from the data in the preceding table. Selling Quotes for Foreign Currencies in New York COUNTRY-CURRENCY CONTRACT $/FOREIGN Canada–dollar Spot .8450 Â 30-day .8415 Week 5 Individual Assignments – due Monday Nov 15 2010 Selling Quotes for Foreign Currencies in New York COUNTRY-CURRENCY CONTRACT $/FOREIGN Â 90-day .8390 Japan–yen Spot .004700 Â 30-day .004750 Â 90-day .004820 Switzerland–franc Spot .5150 Â 30-day .5182 Â 90-day .5328...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern