Calculate the firms interest expense

Reference no: EM13264891

Assume that your firm is considering the following capital structure alternatives: all equity, 75% equity, 50% equity and 25% equity. They estimate that under those scenarios, their bond rating would be AA, A, BBB, and BB respectively and their before-tax cost of debt would be 5%, 6%, 8.5% and 11% respectively. Based on this information and the values you have researched/calculated previously for total capital, operating income, risk-free rate, market risk premium, implied tax rate, shares outstanding and beta:

Calculate the firm's interest expense, net income and EPS at each proposed capital structure and determine which capital structure maximizes EPS.
Calculate your firm's WACC at each proposed capital structure and determine which capital structure minimizes WACC.
Explain what capital structure maximizes shareholder value.
Make a recommendation to your firm's top management team regarding its capital structure.

Reference no: EM13264891

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