Current Capital Structure and WACC Weight Cost Weighted Cost Debt 10% 6.50% 0.65% Preferred 15% 14% 2.10% Equity 75% 18% 13.50% Total 100% 16.25% WACC Target Capital Structure and WACC Weight Cost Weighted Cost Debt 40% 6.5% 2.6% Preferred 10% 14% 1.40% Equity 50% 18% 9% Total 100% 13% WACC What are some...

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Finance

Current Capital Structure and WACC
Weight Cost Weighted Cost
Debt 10% 6.50% 0.65%
Preferred 15% 14%
2.10%
Equity 75% 18% 13.50%
Total 100% 16.25% WACC
Target Capital Structure and WACC
Weight Cost Weighted Cost
Debt 40% 6.5% 2.6%
Preferred 10% 14% 1.40%
Equity 50% 18% 9%
Total 100% 13% WACC
What are some differences between these two structures? Whatissues could the target capital structure create?

Answer & Explanation Solved by verified expert

4.2 Ratings (813 Votes)

Difference between current and target capital structures While debt constitutes only 10 of total capital layout of the enterprise in the current structure it is targeted at 40 Also it can be acknowledged that the cost of debt will not change with the increase in debt structure Preferred See Answer

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Transcribed Image Text

Current Capital Structure and WACCWeightCostWeighted CostDebt10%6.50%0.65%Preferred15%14%2.10%Equity75%18%13.50%Total100%16.25% WACCTarget Capital Structure and WACCWeightCostWeighted CostDebt40%6.5%2.6%Preferred10%14%1.40%Equity50%18%9%Total100%13% WACCWhat are some differences between these two structures? Whatissues could the target capital structure create?

	Weight	Cost	Weighted Cost
Debt	10%	6.50%	0.65%
Preferred	15%	14%	2.10%
Equity	75%	18%	13.50%
Total	100%		16.25% WACC