EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 9PROB
Summary Introduction
Optimal capital structure:
Optimal capital structure is capital structure at which market price of the firm is highest.
Here, question has different proportion of debt, earnings per share and stock price is given
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The basic WACC equation
The calculation of a weighted average cost of capital (WACC) involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure.
what is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation.__________
Bob Co. has $1.26 million of debt, $3.16 million of preferred stock, and $2.02 million of common equity. The appropriate weight of the firm's preferred stock in the calculation of the company's weighted average cost of capital is____________% .
The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure.
Q1. ________is the symbol that represents the cost of preferred stock in the weighted average cost of capital (WACC) equation.
Q2. Avery Co. has $3.9 million of debt, $2 million of preferred stock, and $2.2 million of common equity. What would be its weight on debt?
a. 0.27
b. 0.25
c. 0.48
d. 0.20
Q1. Option 1 rS or Option 2 rD or Option 3 rP or Option 4 rE
Please provide the correct answers. Thank you!
The basic WACC equation
The calculation of a weighted average cost of capital (WACC) involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure.
What is the symbol that represents the cost of raising capital by issuing new stock in the weighted average cost of capital (WACC) equation.
$Kevin Co. has 1.39 million of debt, $1 million of preferred stock, and $2.87 million of common equity. The appropriate weight of the firm's common equity debt in the calculation of the company's weighted average cost of capital is________________%
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