Codrob’s cost of debt
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Please answer the questions below. Excel would be best for me to see how it was worked out.
After discussions with an investment banker about issuing additional debt, your analyst found that the cost of debt (before tax) depends on the amount of debt in the capital structure. Codrob’s cost of debt for various levels of debt financing (D/E) were obtained.
Codrob, Inc.
D/E
Debt/
Capital
(Wd)
rd
Equity
Beta
Equity/
Capital
(We)
rs
WACC
0.00
0.0
n.a.
1.00
1.0
0.20
0.167
6.25%
1.12
0.50
8.0%
0.70
10.0%
0.588
* Debt/Capital = Debt/(Debt + Equity),
Equity/Capital = Equity/(Debt + Equity).
4. a. Complete the table above (show your calculations).
b. What is the firm's optimal capital structure?
12 years ago
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- cost.xlsx