Spreads over libor for alternative debt-to-capital ratiosdd

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Reference no: EM13382131

Spreads over LIBOR for Alternative Debt-to-Capital Ratios

D/D + E

Spread (bps)

Less than 0.40

200

0.40 to 0.49

300

0.50 to 0.69

400

0.60 to 0.69

600

0.70 to 0.79

800

0.80 to 0.89

1,000

0.90 or higher

1,200

  • The current 12-month LIBOR is 4.5 percent.
  • The market risk premium is 4 percent, and unlevered beta is 0.9.
  • The risk-free rate is 4.25 percent.
  • The company's tax rate is 36 percent.

1. Determine the WACC for levels of the debt-to-capital ratio.

2. Recommend a target capital structure given that the company is concerned with achieving the lowest possible cost of capital.

Reference no: EM13382131

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