Reference no: EM133113629

The company earned EBIT= $ 500.000 last year. This year the Company is planning payout dividend to its investors. 50% of shareholders are from Group of Management  and the rest from capital market.  The company has 100.000 shares in the capital market with current market $ 25 per share. 

Alternative Capital Structure to materialize the planning:

Leverage (Wd)	Debt Interest rate (Rd)
0%	-
10%	8,0%
30%	8,5%
40%	10,0%
50%	12,0%

with effective tax rate 30%,  Beta rate =  1, Free risk earning rate  6%, and market premium : 5% 

Lev(Wd)	Debt	(Rd)	NI	NOPAT	TA	We	kd	ROE	WACC
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
0%		-	500,000,000	350,000,000	2,500,000,000	92,86%	0	14,0%	13,00%
10%	250,000,000	8,0%	480,000,000	336,000,000	2,250,000,000	78,50%	5,60%	14,9%	12,26%
30%	675,000,000	8,5%	422,625,000	295,837,500	1,575,000,000	59,71%	5,95%	18,8%	10,88%
40%	630,000,000	10,0%	359,625,000	251,737,500	945,000,000	42,59%	7,00%	26,6%	10,60%
50%	472,500,000	12,0%	302,925,000	212,047,500	472,500,000	28,04%	8,40%	44,9%	10,70%

Could you explain the effect to capital structure and please identify the capital structure affect from the perspective of weighted average cost of capital and value of company!

If answer this

Is it correct?