Question: Only Provide solution to the question attached above as fast as possible within 15 to 20 mins. Thanks You Smart Ltd has the following balance

Only Provide solution to the question attached above as fast as possible within 15 to 20 mins. Thanks You

Only Provide solution to the question attached above as fast as possible

Smart Ltd has the following balance sheet structure: Assets Liabilities and Equity Assets $1000 Debt $300 Equity $700 Total $1000 $1000 Smart Ltd's debtholders require a return of 9% and shareholders require a return of 11%. Ignore tax rates. Mr Very Smart, the CEO of Smart Ltd tells the Board of Smart Ltd that shareholders require a very high return, it's cheaper to use debt to fund our projects. We should therefore raise debt and reduce our equity holdings. This will increase our returns. Required: 1. Calculate the weighted average cost of capital for Smart Ltd. 1 mark. 2. Justify Mr Very Smart's advice to the Board of Smart Ltd. 3 marks

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