Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. elliott is trying to determine it's optimal capita

Elliott is trying to determine it's optimal capital structure. The company's capital structure consists of...

80.2K

Verified Solution

Question

Finance

image

Elliott is trying to determine it's optimal capital structure. The company's capital structure consists of debt and common stock. The company's investment bankers have given the following estimates for Rd. Bond rating Percent financed with debt Before tax cost of debt 0.00 AAA 7.0% 0.20 AA 8.0% 0.40 A 10.0% 0.60 BBB 12.0% 0.80 BB 15.0% Company uses CAPM to estimate it's cost of equity. The risk free rate is 5% and the market risk premium is 6%. Elliott estimates that if it had no debt, it's beta would be 1.2. Company's tax rate is 40% and growth rate is zero. The company estimates it's free cash flow to be 30 mn. On the basis this information, what is the company's optimal capital structure and what is the firm's cost of capital at this optimal capital structure

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

A mining company is considering a new project. Because the mine has received a permit, the...

Finance
Q

Answer the questions –- Print so I can read it in PeN 1) Assume that a...

Chemistry
Q

how reduced NADH and FADH2 feed into the electron transport chain to drop off electrons and H+.

Chemistry
Q

write a research on the critical analysis of christian's consistent lateness to church and the methods...

Psychology
Q

Solve the inequality algebraically x 7 x 9 X 0 The solution is Simplify your...

Calculus
Q

Carla Vista Inc., in its first year of operations, has the following differences...

Accounting
Q

On July 1st,201, the Youngsun Kim Corporation leased equipment to the Irish Lontoc Corporation....

Accounting
Q

37. Investment Return MedTech Corp stock was $51.50 per share at the end of last...

Accounting
Q

7) On June 1,2019, Starbucks paid the rent of $66,000 for 40 of its stores...

Accounting
Q

Minor Electric has received a special one-time order for 800 light fixtures (units) at $3...

Accounting
Q

Zurich International Ltd manufactures a single product. For the month of December 2021, the company...

Accounting
Q

On August 4, 2019, Bennett Corporation purchased 4,500 shares of Plummer Company for $238,500. The...

Accounting