Find the lowest cost debt alternative to fund the other

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Reference no: EM132060754

Yak must now find the lowest cost debt alternative to fund the other half of the proposed expansion program. Because BADASS, Inc. is small and privately held the public debt markets are not an option.

The choices will be, realistically, either a term loan or a private placement.

Banks traffic in term loans which tend to be shorter term in duration, whereas the private placement market is dominated by insurance companies seeking to put larger amounts of capital to work for a longer period of time.

BADASS, Inc. is seeking $50,000 and expects to be able to repay the debt, if it chooses, within three years at the most.

Yak believes the debt should likely be raised through a _________.

Given that half the funds will be borrowed, a pre-tax cost of debt of 8.0% and a 35% tax rate, answer the following:

How much debt will be raised? ________

What are the pre-tax interest costs? ________

What is the after-tax cost of debt (% terms)? _________

What will be weighted average cost of capital (WACC)? _________

Reference no: EM132060754

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