Evans Technology has the following capital structure. Debt ............. 40% Common equity ....... 60 The aftertax cost

Question:

Evans Technology has the following ............. 40%
Common equity ....... 60
The aftertax is 6 percent; and the cost of common equity (in the form of retained earnings) is 13 percent.
a. What is the firm’s weighted average cost of capital?
b. An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax is 7 percent, and the cost of common equity (in the form of retained earnings) is 15 percent. Recalculate the firm’s weighted average cost of capital.
c. Which plan is optimal in terms of minimizing the weighted average cost of capital?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...