(Solution) 12/8/2012 Chapter: Problem: 15 12 Reacher Technology Has Consulted With Investment Bankers And Determined The Interest Rate It Would Pay For | Snapessays.com


(Solution) 12/8/2012 Chapter: Problem: 15 12 Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for


Please help with this assignment. I need the work asap thanks12/8/2012

 

Chapter:

 

15

 

Problem:

 

12

 

Input Data

 

Risk-free rate

 

4.5%

 

Market risk premium

 

5.5%

 

Unlevered beta

 

0.8

 

0%

 

6.0%

 

Tax rate

 

40.0%

 

10%

 

6.1%

 

20%

 

7.0%

 

30%

 

8.0%

 

40%

 

10.0%

 

50%

 

12.5%

 

60%

 

15.5%

 

70%

 

18.0%

 

Fill in formulas in the yellow cells to find the optimum capital structure.

 

Debt/Value Equity/Value Debt/Equity A-T Cost of

 

Levered

 

Cost of

 

Beta

 

Equity

 

WACC

 

0%

 

1.0

 

0.00

 

10%

 

0.9

 

0.11

 

20%

 

0.8

 

0.25

 

30%

 

0.7

 

0.43

 

40%

 

0.6

 

0.67

 

50%

 

0.5

 

1.00

 

60%

 

0.4

 

1.50

 

70%

 

0.3

 

2.33

 

WACC at optimum debt ratio =

 

Optimum debt ratio =

 

Reacher Technology has consulted with investment bankers and determined the interest rate it

 

would pay for different capital structures, as shown below. Data for the risk-free rate, the market

 

risk premium, an estimate of Reacher's unlevered beta, and the tax rate are also shown below.

 

Based on this information, what is the firm's optimal capital structure and what is the weighted

 

average cost of capital at the optimal structure?

 

Percent

 

Financed

 

with Debt

 

(w

 

d

 

)

 

Before-tax

 

Cost Debt

 

(rd)

 

Ratio (w

 

d

 

)

 

Ratio (w

 

s

 

)

 

Ratio (w

 

d

 

/w

 

s

 

)

 

Debt (r

 

d

 

)

 


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This question was answered on: May 23, 2022

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