Reference no: EM132613737
LeCompte Learning Solutions is considering making a change to its capital structure in hopes of increasing its value. The company's capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table:
Percent financed Debt-to-equity Bond Before-tax
with debt (wd) with equity (wc) ratio (D/S)
Rating
cost of debt 0.10 0.90 0.10/0.90 = 0.11
AAA 7.0% 0.20 0.80 0.20/0.80 = 0.25
AA 7.2 0.30 0.70 0.30/0.70 = 0.43
A 8.0 0.40 0.60 0.40/0.60 = 0.67
BBB 8.8 0.50 0.50 0.50/0.50 = 1.00
BB 9.6
The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 5% and the market risk premium is 6%. LeCompte estimates that if it had no debt its beta would be 1.0. (Its "unlevered beta," bU, equals 1.0.) The company's tax rate, T, is 40%.
Problem 1: On the basis of this information, what is LeCompte's optimal capital structure, and what is the firm's cost of capital at this optimal capital structure?
Option a. wc = 0.7; wd = 0.3; WACC = 7.83%
Option b. wc = 0.9; wd = 0.1; WACC = 14.96%
Option c. wc = 0.6; wd = 0.4; WACC = 10.15%
Option d. wc = 0.5; wd = 0.5; WACC = 10.18%
Option e. wc = 0.8; wd = 0.2; WACC = 10.96%
|
What was the average receivables balance
: Krackle Korn Inc. had credit sales of $3,500,000 last year, What was its average receivables balance, based on a 365-day year?
|
|
What is the role of business process reengineering
: What is the role of business process reengineering (BPR) in enhancing competitiveness? Give examples to illustrate your answer. Respond to at least two of your.
|
|
Indicate the amount of the reserve
: Indicate the amount of the reserve that can be deducted, and the net business income, for each of the years 2019 through 2023
|
|
Change process to the implementation of the change
: Present the steps or process the organization followed, from the initiation of the change process to the implementation of the change.
|
|
What is lecompte optimal capital structure
: LeCompte Learning Solutions, What is LeCompte's optimal capital structure, and what is the firm's cost of capital at this optimal capital structure?
|
|
Has the crisis changed the structure of the us economy
: Has the crisis changed the structure of the U.S. economy? Could a similar recession happen in the future, why or why not? Provide supporting facts for your.
|
|
Calculate the total value of the annuity due at the end
: Kim Allen invested $1500 twice a year in an annuity due at All-Star Investments for a period of 9 years. calculate the total value of the annuity due at the end
|
|
Consumer spending habits have undergone dramatic
: Consumer spending habits have undergone dramatic and enduring change with the slowed economy in the United States.
|
|
What is the probability the customer is a male
: Required - Suppose a randomly selected customer prefers overnight shipping. What is the probability the customer is a male
|