Answer:
The firm's optimal capital structure is 80% Debt and 20% Equity.
The WACC at this optimal capital structure is 10.28%.
Explanation:
Note: See the attached excel file the computation of the weighted average cost of capital (WACC) at the optimal capital structure. Also note that the data in the question are merged together but they are sorted in the attached excel file before answering the question.
The optimal capital structure of a firm can be described as a combination of debt and equity financing that is the beat in which market value of the firm is maximized while its cost of capital is minimized.
Using the weighted average cost of capital (WACC), the optimal capital cost capital structure occurs at a point where the WACC is the lowest.
From the attached excel file, the lowest WACC is 0.1028, or 10.28%. At this firm Market Debt- to-Value Ratio (wd) which is debt is 0.80 (i.e. 80%), and Market Equity-to-Value Ratio (ws) which is equity is 0.20 (i.e. 20%).
Therefore, the firm's optimal capital structure is 80% Debt and 20% Equity.
The WACC at this optimal capital structure is 10.28%.
On Monday and Tuesday, the process appears to be out of control.
<u>Explanation</u>:
- There are five days Monday, Tuesday,Wednesday, Thursday and Friday. Monday and Tuesday have weight up to 21. Wednesday weights up to 21.
- Thursday and Friday weigh up to 20. Except for Monday and Tuesday, all the days have packaged up to the value of 21. So Monday and Tuesday are the days that appear to be out of control.
- On checking the package for each day he came to know that Monday and Tuesday have process out of control.
Answer:
Decide the issuance of cost of the bonds:
The issuance cost of bonds is the sum the obliged substance raised through the issue of legally binding proclamation called bonds. The cost of securities relies on the assumed worth, time frame, the coupon rate and the market rate.
Coming up next are three general standards regarding bonds issue cost:
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On the off chance that the coupon pace of the security is equivalent to the market loan fee, at that point the security is said to be given at standard.
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On the off chance that the coupon pace of the security is more prominent than the market financing cost, at that point the security is said to be given at premium.
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On the off chance that the coupon pace of the security is lower than the market loan cost, at that point the security is said to be given at rebate.
In the current case, both the coupon rate and the market premium are 8% and are equivalent. Thus, the issue cost of bonds is equivalent to the standard worth. That is $600,000.
