week 5 weighted average cost of capitol

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

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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.

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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...
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