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, is evaluating how to finance his decision to expand his operations. Based on his calculations, expanding is very profitable provided the cost of capital does not exceed 10%. The current interest rate in the bank is 7% for loans equal or below Php10 M but it becomes 10% if the loan is above Php10 M. On the other hand, the cost of using equity is 9%. Questions: a. If he needsPhp15 M, what will be the weighted average cost of capital (wacc) if Mr. Ong borrows the Php15M? b. What will be the wacc if Mr. Ong uses equity? c. What will be the wacc if Mr. Ong borrows the Php10M and uses Php5M equity? d. What will be the wacc if Mr. Ong borrows the Php12M and uses an equity of Php3M? e. What is an optimal decision for Mr. Ong?  options: 1. borrow the Php 15 M 2. use the equity to finance the Php 15 M 3. borrow Php 10

, is evaluating how to finance his decision to expand his operations. Based on his calculations, expanding is very profitable provided the cost of capital does not exceed 10%. The current interest rate in the bank is 7% for loans equal or below Php10 M but it becomes 10% if the loan is above Php10 M. On the other hand, the cost of using equity is 9%. Questions: a. If he needsPhp15 M, what will be the weighted average cost of capital (wacc) if Mr. Ong borrows the Php15M? b. What will be the wacc if Mr. Ong uses equity? c. What will be the wacc if Mr. Ong borrows the Php10M and uses Php5M equity? d. What will be the wacc if Mr. Ong borrows the Php12M and uses an equity of Php3M? e. What is an optimal decision for Mr. Ong?  options: 1. borrow the Php 15 M 2. use the equity to finance the Php 15 M 3. borrow Php 10

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Mr. Ong, is evaluating how to finance his decision to expand his operations. Based on his calculations, expanding is very profitable provided the cost of capital does not exceed 10%. The current interest rate in the bank is 7% for loans equal or below Php10 M but it becomes 10% if the loan is above Php10 M. On the other hand, the cost of using equity is 9%. Questions: a. If he needsPhp15 M, what will be the weighted average cost of capital (wacc) if Mr. Ong borrows the Php15M? b. What will be the wacc if Mr. Ong uses equity? c. What will be the wacc if Mr. Ong borrows the Php10M and uses Php5M equity? d. What will be the wacc if Mr. Ong borrows the Php12M and uses an equity of Php3M? e. What is an optimal decision for Mr. Ong?  options: 1. borrow the Php 15 M 2. use the equity to finance the Php 15 M 3. borrow Php 10 M and use the equity of Php 5 M 4. borrow Php 12 M and use the equity of Php 3M E. do not expand anymore because it is costly
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