Reference no: EM13328586
Problem 1
Mass Inc. is trying to estimate its optimal capital structure. Right now, Mass Inc. has a capital structure that consists of 50 percent debt and 50 percent equity, based on market values. (Its D/S ratio is 1.00) The riskfree rate is 6 percent and the market risk premium, K M K RF, is 5 percent. Currently the company s cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. What would be Mass Inc. s estimated cost of equity if it were to change its capital structure to 60 percent debt and 40 percent equity?
Problem 2
23,104 32,562
Cost of goods sold
8,195 14,176
BALANCE SHEET COCA-COLA PEPSI
Assets
Cash and Cash Equivalents 4,701 1,716
Short-term Investments 66 3,166
Accounts Receivables 2,281 3,261
Inventory 1,424 1,693
Other Current Assets 1,778 618
Total Current Assets
10,250 10,454
Total Assets
29,427 31,727
Financed by: COCA-COLA PEPSI
Accounts Payable 5,290 5,357
Short-term debt 4,546 2,889
Other Current Liabilities 0 1,160
Total Current Liabilities
9,836 9,406
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