A firm is planning to raise funds for Rs.50 million. The firm is exploring the options...

 

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A firm is planning to raise funds for Rs.50 million. The firm is exploring the options of Debt-Equity mix given in the table below. The cost of debt is 8% up to a Debt-Equity mix of 50% and increases to 9.5% beyond that limit. The risk free-rate is 6.5%. The return from the market index is 9.5%. The stock beta of the firm is 1.55. The firm's tax rate is 30%. OPTION 1 2 IN 3 4 Required: DEBT 70% 60% 50% 40% EQUITY 30% 40% 50% 60% Determine the Weighted Average Cost of Capital for each of the options and suggest the optimal mix for debt and equity. A firm is planning to raise funds for Rs.50 million. The firm is exploring the options of Debt-Equity mix given in the table below. The cost of debt is 8% up to a Debt-Equity mix of 50% and increases to 9.5% beyond that limit. The risk free-rate is 6.5%. The return from the market index is 9.5%. The stock beta of the firm is 1.55. The firm's tax rate is 30%. OPTION 1 2 IN 3 4 Required: DEBT 70% 60% 50% 40% EQUITY 30% 40% 50% 60% Determine the Weighted Average Cost of Capital for each of the options and suggest the optimal mix for debt and equity.

Answer rating: 100% (QA)

To determine the Weighted Average Cost of Capital WACC for each option we need to calculate the cost of debt cost of equity and the proportion of debt ... View the full answer