WACC AND OPTIMAL CAPITAL STRUCTURE Elliott Athletics is trying to determine its optimal capital structure, which now consists of only debt and common equity. The firm dots not currently use
Elliott uses the
- a. What is the firm's optimal capital structure, and what would be its WACC at the optimal capital structure?
- b. If Elliott's managers anticipate that the company's business risk will increase in the future, what effect would this likely have on the firm's target capital structure?
- c. If Congress were to dramatically increase the corporate tax rate, what effect would this likely have on Elliott's target capital structure?
- d. Plot a graph of the after-tax cost of debt, the
cost of equity , and the WACC versus (1) - e. the debt/capital ratio and (2) the debt /equity ratio.
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Chapter 14 Solutions
Fundamentals of Financial Management (MindTap Course List)