Business, 03.09.2021 20:40, zoeedadoll
Wildcat Pizza, Inc. is trying to decide whether to revise its target capital structure. Currently, it targets a 50-50% mix of debt and equity, but it is considering a target capital structure with 70% debt. Wildcat currently has 6% after-tax cost of debt and a 12% cost of common stock. The company does not have any preferred stock outstanding.
Required:
a. What is American​ Exploration's current​ WACC?
b. Assuming that its cost of debt and equity remain​ unchanged, what will be American​ Exploration's WACC under the revised target capital​ structure?
c. Do you think shareholders are affected by the increase in debt to 70​%? If​ so, how are they​ affected? Are the common stock claims riskier​ now?
d. Suppose that in response to the increase in​ debt, American​ Exploration's shareholders increase their required return so that cost of common equity is 18​%. What will its new WACC be in this​ case?
e. What does your answer in part d suggest about the tradeoff between financing with debt versus​ equity?
Answers: 2
Other questions on the subject: Business
Business, 22.06.2019 05:00, leonidas117
Which of the following differentiates cost accounting and financial accounting? a. the primary users of cost accounting are the investors, whereas the primary users of financial accounting are the managers. b. cost accounting measures only the financial information related to the costs of acquiring fixed assets in an organization, whereas financial accounting measures financial and nonfinancial information of a company's business transactions. c. cost accounting measures information related to the costs of acquiring or using resources in an organization, whereas financial accounting measures a financial position of a company to investors, banks, and external parties. d. cost accounting deals with product design, production, and marketing strategies, whereas financial accounting deals mainly with pricing of the products.
Answers: 3
Business, 22.06.2019 12:10, gingerham1
Laws corporation is considering the purchase of a machine costing $16,000. estimated cash savings from using the new machine are $4,120 per year. the machine will have no salvage value at the end of its useful life of six years and the required rate of return for laws corporation is 12%. the machine's internal rate of return is closest to (ignore income taxes) (a) 12% (b) 14% (c) 16% (d) 18%
Answers: 1
Business, 22.06.2019 20:50, lopez5628
Many potential buyers value high-quality used cars at the full-information market price of € p1 and lemons at € p2. a limited number of potential sellers value high-quality cars at € v1 ≤ p1 and lemons at € v2 ≤ p2. everyone is risk neutral. the share of lemons among all the used cars that might be potentially sold is € θ . suppose that the buyers incur a transaction cost of $200 to purchase a car. this transaction cost is the value of their time to find a car. what is the equilibrium? is it possible that no cars are sold
Answers: 2
Do you know the correct answer?
Wildcat Pizza, Inc. is trying to decide whether to revise its target capital structure. Currently, i...
Questions in other subjects:
Mathematics, 22.12.2019 21:31
World Languages, 22.12.2019 21:31
Mathematics, 22.12.2019 21:31
Mathematics, 22.12.2019 21:31
