Walmart is considering changing the current capital structure to 40% debt and 60% equity, how would this impact the company's cost of capital?  Would you recommend this change? Why or why not?

Beta = 0.53

Risk Free Rate = 1.95%

Average Market Rate of Return = 8%

Equity Risk Premium = 6.05%

 

Market Value of Debt =  $48, 644, 000, 000

Cost of Debt = 4.06%

Weight of Debt = 10.91

 
Market Value of Equity = $397, 054, 230, 220

Weight of Equity = 89.09%

Cost of Equity = 5.16%

 
Market Value of Company = $445, 698, 230, 220

Effective Tax Rate = 24.48%

WACC = 4.93%

Answer rating: 100% (QA)

SOLUTION To determine the impact of changing Walmarts capital structure to 40 debt and 60 equity we need to calculate the new weights cost of debt cos... View the full answer