WACC and Optimal Capital Structure Elliott Athletics is trying to determine its optimal capital structure, which now

Question:

WACC and Optimal Capital Structure Elliott Athletics is trying to determine its optimal capital structure, which now consists of only debt and common equity. The firm does not currently use preferred stock in its capital structure, and it does not plan to do so in the future. To estimate how much its debt would cost at different debt levels, the company's treasury staff has consulted with investment bankers and, on the basis of those discussions, has created the following table:

Elliott uses the CAPM to estimate its cost of common equity, rs. The company estimates that the risk-free rate is 5%, the market risk premium is 6%, and its tax rate is 40%. Elliott estimates that if it had no debt, its "unlevered" beta, bU, would be 1.2. Based on this information, what is the firm's optimal capital structure, and what would the weighted average cost of capital be at the optimal capitalstructure?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...