Spreads over libor for alternative debt-to-capital ratiosdd

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Reference no: EM13382131

Spreads over LIBOR for Alternative Debt-to-Capital Ratios

D/D + E	Spread (bps)
Less than 0.40	200
0.40 to 0.49	300
0.50 to 0.69	400
0.60 to 0.69	600
0.70 to 0.79	800
0.80 to 0.89	1,000
0.90 or higher	1,200

The current 12-month LIBOR is 4.5 percent.
The market risk premium is 4 percent, and unlevered beta is 0.9.
The risk-free rate is 4.25 percent.
The company's tax rate is 36 percent.

1. Determine the WACC for levels of the debt-to-capital ratio.

2. Recommend a target capital structure given that the company is concerned with achieving the lowest possible cost of capital.

Reference no: EM13382131

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