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- 9. Determining the optimal capital structure Aa Aa Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio EPS DPS Stock Price 30% 70% 1.55 0.34 22.35 40% 60% 1.67 0.45 24.56 50% 50% 1.72 0.51 25.78 60% 40% 1.78 0.57 27.75 70% 30% 1.84 0.62 26.42 Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio 50%; equity ratio 50% Debt ratio = 30%; equity ratio = 70% Debt ratio 70%; equity ratio 30% Debt ratio = 40%; equity ratio = 60% Debt ratio 60%; equity ratio = 40% Consider this case: Globex Corp. has a capital structure that consists of 30% debt and 70% equity. The firm's current beta is 1.15, but management wants to understand Globex Corp.'s market risk without the effect of leverage. If Globex Corp. has…Consider this case: Globex Corp. has a capital structure that consists of 30% debt and 70% equity. The firm’s current beta is 1.25, but management wants to understand Globex Corp.’s market risk without the effect of leverage. If Globex Corp. has a 25% tax rate, what is its unlevered beta? 0.90 0.81 1.09 0.95An all equity financed company currently has a beta of 1.2 and a marginal tax rate of 20%. The expected return on the market is 8%. The risk-free rate of return is 3%. The company's before-tax cost of debt is 5%. The company decides to alter its capital structure and will target 50% debt, which will remain constant. What is this company's new weighted average cost of capital (WACC)? a) 6.5% b) 7.7% c) 8.9% d) 10.2%
- Suppose that Tesla has a market Beta of 2.01 . They have a debt to equity valve of34%and a tax rate of25%. The risk free rate is3%and the inarket risk premium is4.1%Suppose that Tesla acquives Fivian and their new debt to equity rato is75%. What is Tesla's new market Beta? A. 1.75 B. 1.84 C. 201 D. 250Q1. A Corporation is trying to determine its optimal capital structure using the following table.The company estimates that the risk-free rate is 5%, the market risk premium is 6%, and its tax rate is 40%. Itestimates that if it had no debt, its beta, would be 1.2. Based on the information, what is the firm’s optimal capitalstructure, and what would the WACC be at the optimal capital structure?which one is correct please confirm? QUESTION 5 Heleveton Industries is 100% equity financed. Its current beta is 1.1. The expected market risk premium is 8.5%, and the risk-free rate is 4.2%. If Heleveton changes its capital structure to 25% debt, it estimates its beta will increase to 1.2. If the after-tax cost of debt will be 6%, should Heleveton make the capital structure change? a. Yes, cost of capital decreases 1.67% b. No, cost of capital increases by 0.85% c. Yes, cost of capital decreases by 2.52% d. No, stock price would decrease due to increased risk
- Your firm has a target debt ratio of 30%. Cost of debt (Rb) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1. What is the appropriate rate to discount the interest tax shields associated with your debt? Only typed answerA. CALCULATE the cost of equity capital of H Ltd., whose risk-free rate of return equals 10%. The firm's beta equals 1.75 and the return on the market portfolio equals to 15%. B. The current ratio of H Ltd is 5:1 and standard current ratio given by accounting bodies is 2:1? Do you think that H Ltd should try to reduce its current ratio?Tele LLC has a beta of 1.4 and is trying to calculate its cost of equity capital. If the risk-free rate of return is 9 percent and the average market return 14 percent, then what is the firm's after-tax cost of equity capital if the firm's marginal tax rate is 30 percent? Select one: O a. 22 % O b. None of these O c. 12 % O d. 16 %
- Terex company has a beta of 1.7 and is trying to calculate its cost of equity capital. If the risk-free rate of return is 5 percent and the average market return 16 percent, then what is the firm's after-tax cost of equity capital if the firm's marginal tax rate is 30 percent? Select one: a. 22.8 % b. 22.5 % c. 23.7 % d. None of theseCounts Accounting’s beta is 1.15 and its tax rate is 40%. If it is financedwith 20% debt, what is its unlevered beta?1) Counts Accounting has a beta of 1.50. The tax rate is 35%, and Counts is financed with 40% debt. What is Counts' unlevered beta? Round your answer to two decimal places. (2) Ethier Enterprise has an unlevered beta of 1.05. Ethier is financed with 45% debt and has a levered beta of 1.15. If the risk free rate is 5% and the market risk premium is 5%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk?