User Account

All Pages

Why does the cost of equity and the wacc change

Assignment Help Finance Basics
Reference no: EM132602146

Axsa has zero debt in its capital structure. Its overall cost of capital is currently 9%. The firm is considering a new capital structure with 40% debt. The interest rate of the debt would be 4% no matter what amount of debt is taken on.

a. Assuming that the corporate tax rate is 34%, what would be the firm's cost of equity and WACC with the new capital structure?

b. Now increase the new capital structure to a D/E ratio of 2.333333. What would the cost of equity be now? What about the WACC?

c. Why does the cost of equity and the WACC change, if at all, from part (a) to part (b)?

Reference no: EM132602146

Questions Cloud

How many equal annual payments will be made : Barton Company has just purchased a machine with a cost of $100,000, If the current rate of interest is 8%, how many equal annual payments will be made
Real property have duty of care : State statutes require that owners of real property have a "duty of care" in regards to anyone who might be negligently injured on that property.
Describes the project topic and conclusions of each article : Describes the project's topic, resources reviewed, and conclusions of each article. Summarizes the principal findings of the research and their relevance.
Describe component unit vs a primary government : Describe the relationships between a component unit and a primary government. Provide some examples and describe the financial reporting
Why does the cost of equity and the wacc change : Axsa has zero debt in its capital structure. Its overall cost of capital is currently 9%. The firm is considering a new capital structure with 40% debt.
Market analysis-pricing strategy and financial assumptions : Assess a Case Study relative to Market Analysis, Pricing Strategy and Financial Assumptions.
Discuss what is a beta coefficient : What is a beta coefficient, and how are betas used in risk analysis? Do the expected returns appear to be related to each alternative's market risk?
Why is staffing important : Why is staffing important? Who is responsible for it? Is it a function of personnel/human resource departments?
Defined tyranny as illegitimate form of government : Aristotle defined tyranny as an illegitimate form of government by one individual that tightly controlled every part of life and government.

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd