Estimate its optimal capital structure

Assignment Help Financial Management

Reference no: EM131599919

1. O’Connor Moving Co. is trying to estimate its optimal capital structure. Right now, O’Connor has a capital structure that consists of 80 percent debt and 20 percent equity, based on market values. The risk-free rate is 4 percent and the market risk premium is 8 percent. Currently the company’s cost of equity is 19 percent and its tax rate is 35 percent. What would be O’Connor’s estimated cost of equity if it were to change its capital structure to 50 percent debt and 50 percent equity?

10.9%

21.3%

8.2%

19%

2. A borrower requests a $150 loan from the bank. The borrower is type A with probability 0.35 and type B otherwise. Type A always repays but type B only repays with probability 0.7. If the bank cannot observe the borrower's type, what is the competitive interest rate the bank can offer?

24.3%

27.5%

31%

33.3%

Reference no: EM131599919

Questions Cloud

What is journal entry to record the dishonored note : Valley Spa purchased $11,700 in plumbing components from Tubman Co. Valley Spa Studios signed 60-day, what is the journal entry to record the dishonored note?

Calculate the monthly payment amount : Calculate the monthly payment amount. Calculate the principal balance at the end of the 3 year term.

Consistent with the life cycle theory of dividend policy : Which of the following is not consistent with the life cycle theory of a dividend policy?

What is the current bond price : Jeffries, Inc. has 8 percent coupon bonds with a $1,000 par value on the market that have 13 years left to maturity. what is the current bond price?

Estimate its optimal capital structure : What would be O’Connor’s estimated cost of equity if it were to change its capital structure to 50 percent debt and 50 percent equity?

The ratios for several balance sheet items : The firm is operating at full capacity. The ratios for several balance sheet items and income statement items relative to sales were calculated as follows.

What type of communication is illustrated : What type of communication is illustrated by this example?

Profitable and growing firms may run short on cash because : _____ is a method of offering securities to a limited number of investors. Profitable and growing firms may run short on cash because _________.

Replacement value-used low-field mri scanner : Huntington Medical Center purchased a used low-field MRI scanner 2 years ago for $445,000.

User Account

All Pages