Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. one of your new employees notes that your debt has

One of your new employees notes that your debt has a lower cost of capital...

90.2K

Verified Solution

Question

Finance

image

One of your new employees notes that your debt has a lower cost of capital (7%) than your equity (15%). So, he suggests that the firm swap its capital structure from 35% debt and 65% equity to 65% debt and 35% equity instead. He estimates that after the swap, your cost of equity would be 21%. a. What would be your new cost of debt? Make your calculations based on your firm's pre-tax WACC. b. Have you lowered your overall cost of capital? a. The new cost of debt is %. (Round to two decimal places.) b. Have you lowered your overall cost of capital? (Select the best answer below.) O A. No, because your overall cost of capital (WACC) is not determined by the risk of your assets. OB. No, because your overall cost of capital (WACC) is determined by the risk of your assets. OC. Yes, because your overall cost of capital (WACC) is not determined by the risk of your assets. OD. Yes, because your overall cost of capital (WACC) is determined by the risk of your assets

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: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students