User Account

All Pages

Determine the best combination of debt and equity

Assignment Help Corporate Finance
Reference no: EM131386069

1. Changing WACC and optimal choice. Austin Enterprises is currently an all-equity firm. The firm is considering selling debt (bonds) and retiring some of the equity. However, at each level of debt, debt becomes more expensive (cost of debt is rising), and the riskiness of the equity also rises with more and more debt. Using a spreadsheet, determine the best combination of debt and equity for Austin Enterprises if....

The current beta of Austin Enterprises is 0.85.
The current market return is 12%.
The current risk-free rate is 3%.
The total equity is 20,000,000 shares at $25 per share.
Debt is sold in units of $2,000,000.
The first unit of debt has a cost of 7.5%.
The tax rate of Austin Enterprises is 40%.

For each additional unit of debt (each additional $2,000,000), the cost of debt rises by 0.85%, and the beta of Austin Enterprises rises by 0.025.

Where is the WACC the lowest? Graph the results of the changing WACC.

Reference no: EM131386069

Questions Cloud

Recessionary gap by using open-market operations : Suppose the Fed wishes to close a recessionary gap by using open-market operations. What should the Fed do and how would this action close the gap?
Draw up the appropriation account of the partnership : The net profit of the partnership, before taking any of the above into account was £230,000. You are required to draw up the appropriation account of the partnership for the year ending 31 July 2016.
Draw the truth tables for x y and z : In this chapter, we have introduced the full-adder circuit. What is the relative performance to compute the resulting sum bits of the 2-bit adder compared to two full adders connected together? (Hint: Which has the worst delay in terms of gates to..
How many packages of 2-input xor gates would be required : How many packages of 2-input XOR gates would be required (again, assume there are four to a package).
Determine the best combination of debt and equity : Fin419- However, at each level of debt, debt becomes more expensive, and the riskiness of the equity also rises with more and more debt. Using a spreadsheet, determine the best combination of debt and equity for Austin Enterprises if
Draw up a profit and loss appropriation account : Draw up a profit and loss appropriation account for the year ending 31 December 2017 and statement of financial position extract at that date.
Implement an uml to java code : Need to implement an UML to java code. Choose one of the two UML's and just implement. You are to implement someone else's design, namely, the design that you ranked first (although you are allowed to change your mind at any point if you wish)
Fill in the rest of the timing diagram : At time T, the switch is moved from position 1 to position 2 (down). Fill in the rest of the timing diagram with the logic values of the signals at points A, B, C, and D in the given circuit.
Draw up a profit and loss appropriation account for cole : Draw up a profit and loss appropriation account for Cole, Knox and Lamb for the year ending 31 December 2017, and a statement of financial position extract at that date.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Explain the strengths and weaknesses of the company

Using the concepts from this course, you will analyze the strengths and weaknesses of the company and write a report recommending whether or not to purchase the company stock.

  Evaluation of ebit-eps indifference point

Evaluation of EBIT-EPS indifference point - One piece of information the company desires for its decision analysis is an EBIT-EPS indifference point.

  Prepare a monthly summary of cash payments for the six-month

Interest payments on the debt will be $4,500 for both March and June. Prepare a monthly summary of cash payments for the six-month period from January through June.

  Income statement from incomplete info from balance sheetthe

income statement from incomplete info from balance sheet.the accounts of acme company with the increases or decreases

  How can shareholders interest coincide even though they take

How can shareholders' interests coincide even though they take different stances toward the company? How can shareholders' interests differ even when their orientations mainly agree?

  What was your total real return on investment

Suppose you decide to sell your bonds today, when the required return on the bonds is 11 percent. If the inflation rate was 3.4 percent over the past year, what was your total real return on investment?

  Find the real gdp percent

Assume nominal GDP in 1999 was 100 billion dollar & in 2001 it was 270 billion dollar. The general price index in 1999 was 100 & in 2001, it was 150.

  Calculate the expected value of wealth

Suppose a person with the given utility function over wealth: where e is the exponential function and w is equal to wealth in hundreds of thousands of dollars.

  Compute the expected value

You have decided to invest a graduation gift of $1000. The yearly rate of return is given in the following table for each of three different types of investments & three (3) different states of economy.

  1- you expect the ibm to hit 120 per share with expected

1- you expect the ibm to hit 120 per share with expected dividends of 2.50 in one year.its current price is 105 and

  What impact would restructuring have

Assuming that the company faces a 35 percent tax rate, what impact would this restructuring have on its sustainable growth rate?

  Prepare a brief letter to your client

Prepare a brief letter to your client advising why a portfolio reallocation into international stocks might be favorable.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd