choose a Pakistani firm from any resource to estimate the optimal mix of debt and equity for that firm and to evaluate the effect on firm value of moving to that mix. In this respect:

1. The firm chosen can be the one on which you had already worked / reported / presented in any of your courses before.

2. Based on the cost of capital approach, estimate the optimal debt ratio for the firm and examine how sensitive it is to your operating income assumptions. If you can, confirm your conclusions using other approaches (if you want) to estimating the optimal mix.

3. Bringing in reasonable constraints into the decision process, estimate the optimal debt ratio that you would recommend for the firm.

4. Evaluate how much your firm has borrowed, relative to other firms in the sector and in the market.

Key Steps / Hints:

a. As a starting point, estimate the current debt ratio for the firm and the cost of capital at that debt ratio.

b. Estimate your costs of debt, equity, and capital as your debt ratio changes in the firm. Determine the optimal mix of debt and equity for your firm.

c. Compare the optimal debt ratio that you get, using this approach, to the one that you get with the cost of capital approach

. d. Make a judgment on your "optimal" debt ratio.

e. Relative to the industry to which this firm belongs, evaluate whether your firm has too much or too little in debt. Evaluate whether your firm has too much or too little in debt.

Please choose a Pakistani company / firm like for example uniliver .

It should be of word count four hundred words

Course is Corporate finance

Answer rating: 100% (QA)

For this analysis I will choose Unilever Pakistan Limited a subsidiary of the global consumer goods giant Unilever as the Pakistani firm to estimate t... View the full answer