Question: Home Insert Draw Page Layout Formulas Data Review View Share Comments Calibri V 11 AA ab v Custom Conditional Formatting Insert v EVAC V v

Home Insert Draw Page Layout Formulas Data Review View Share Comments Calibri V 11 AA ab v Custom Conditional Formatting Insert v EVAC V v Paste BI U V V GAV Format as Table Ex Delete v 2 7 v $ ~ % " Cell Styles v Format X v Sort & Find & Ideas Filter Select SUM X V fx =BondratingDebtCost! A B C D F G H I J K L M N O Key Industrial Financial Ratios (Three-year medians 2000-02) AAA AA A BBB BB B EBIT interest coverage (x) 23.4 13.3 6.3 3.9 2.2 1.0 EBITDA interest coverage (x) 25.3 16.9 8.5 5.4 3.2 1.7 Funds from operations/total debt (%) 214.2 65.7 42.2 30.6 19.7 10.4 Free operating cash flow/total debt (%) 156.6 33.6 22.3 12.8 7.3 1.5 Return on capital (%) 35.0 26.6 18.1 13.1 11.5 8.0 Operating income/sales (%) 23.4 24.0 18.1 15.5 15.4 14.7 Long-term debt/capital (%) (1.1) 21.1 33.8 40.3 53.6 72.6 16 Total debt/capital, incl. short-term debt (%) 5.0 35.9 42.6 47.0 57.7 75. 1 Standard & Poor's defined these ratios based on the book value of these items as follows: EBIT interest coverage = EBIT/interest expense EBITDA interest coverage = (EBIT plus depreciation and amortization)/interest expense Long-term debt/capital = long-term debt/(long-term debt + stockholders' equity) Total debt/capital, incl. short-term debt = (short-term debt + long-term debt)/(short-term debt + long-term debt + stockholders' equity) 23 24 25 Source of data: Standard & Poor's CreditStats. 26 27 Capital Costs by Rating Category 28 Investment grade Noninvestment grade 29 AAA AA BBB BB B Cost of debt 30 (pretax) 5.00% 6.00% 7.00% 8.00% 10.00% 11.00% 31 32 33 34 Source of data: Hudson Bancorp 35 D BondratingDebtCost Effect of Leverage Min WACCExcel File Edit View Insert Format Tools Data Window Help 41% Tue 1:21 PM Diana Par QE AutoSave O OFF ~ B - 5 = FIN 4012 Assg I Q Q v O Home Insert Draw Page Layout Formulas Data Review View Share Comments Conditional Formatting Insert v EV AY- O. Google Chrome Calibri V 11 ~ A" A EE Custom V v Z Paste BI U V V VAV $ ~ % 9 408 28 Format as Table Delete Cell Styles v Format v X v Sort & Find & Filter Ideas Select O SUN 4 x v fx ='Min WACC'! A B C D E F G H I J K L M N 0 P Q R Google Chrome Estimating the Optimal Level of Leverage Complete the table by filling out the yellow cells. You may need to refer to worksheet "BondratingDebtCost". Mark the words in the row with optimal capital structure in red. Show your process or formulas used. Today Tax rate 40.00% Risk Free rate 5.00% Market premium 7.00% Cost of in Debt % in Equity Bond rating Before tax After tax cost of debt cost of debt Beta equity WACC Screen Shot (CAPM) 2020-0....21.07 PM 11 12 0% A 1. 13 20% 3BB Miliii 40% BB 15 60% 12.00% J13 16 80% D 15.00% 17 Screen Shot 18 2020-0...20.36 PM 19 20 21 22 23 24 25 26 27 28 29 30 D Bondrating DebtCost Effect of Leverage Min WACC + Point + 100% FEB 4 W X

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