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. Its treasury staff has consulted with investment bankers. On the basis of those discussions, the staff has created the following table showing the firm’s debt cost at different levels:.transtutors.com/Transtutors001/Images/Transtutors001_6b3ec813-b92f-4304-a623-b7a021589ea7.PNG”>Elliott uses the CAPM to estimate its cost of common equity, rs, and 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 ?ounlevered?? beta, bU, would be 1.2.a. What is the firm’s optimal capital structure, and what would be its WACC at the optimal capital structure?b. If Elliott’s managers anticipate that the company’s business risk will increase in the future, what effect would this likely have on the firm’s target capital structure?c. If Congress were to dramatically increase the corporate tax rate, what effect would this likely have on Elliott’s target capital structure?d. Plot a graph of the after-tax cost of debt, the cost of equity, and the WACC versus (1) the debt/assets ratio and (2) the debt/equityratio.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more