Which plan is optimal in terms of minimizing

Reference no: EM13268439

Evans Technology has the following capital structure.
*Debt-40%
*Common Equity- 60
The aftertax cost of debt it 6%, and the cost of common equity (in the form of retained earnings) is 13%.

A) What is the firms weighted average cost of capital?

B. An outside consultant has suggested that because debt it cheaper than equity, the firm should switch to a capital structure that is 50% debt and 50% equity. Under this new and more debt oriented arrangement, the aftertax cost of debt is 7%, and the cost of common equity (in the form of retained earnings) is 15%. Recalcualte the firms weighted average cost of capital.

C. Which plan is optimal in terms of minimizing the weighted average cost of capital?

Reference no: EM13268439

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