A firm's current balance sheet is as follows: a. What is the firm's weighted-average cost of capital

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A firm's current balance sheet is as follows:


A firm's current balance sheet is as follows:  .:.


a. What is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information?

A firm's current balance sheet is as follows:  .:.


b. Construct a pro-forma balance sheet that indicates the firm's optimal capital structure. Compare this balance sheet with the firm's current balance sheet. What course of action should the firm take?
Assets.....$100
Debt ...... $?
Equity ...... $?
c. As a firm initially substitutes debt for equity financing, what happens to the cost of capital, and why?
d. If a firm uses too much debt financing, why does the cost of capital rise?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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