Given the following information, fill out the following table and determine what should be the optimal...

Given the following information, fill out the following table and determine what should be the optimal capital structure for Concours Corp. The company has $10 million in assets, a marginal tax rate of 30%, and each million in debt used causes Rd to increase by 1.0% and Rs to increase by .8%.

Debt	Rd	Rs	WACC
0	--	12%	12%
$1 Mill
$2 Mill
$3 Mill
$4 Mill
$5 Mill
$6 Mill
$7 Mill
$8 Mill

Expert Solution

Debt($ Million)	Rd	Rs	WACC
0	0.00%	12.00%	12.00%
1	1.00%	11.20%	10.1500%
2	2.00%	10.40%	8.6000%
3	3.00%	9.60%	7.3500%
4	4.00%	8.80%	6.4000%
5	5.00%	8.00%	5.7500%
6	6.00%	7.20%	5.4000%
7	7.00%	6.40%	5.3500%
8	8.00%	5.60%	5.6000%

Optimal capital structure = onewith lowest WACC = Debt of $7 million

WACC = Rd*(1-Tax) *Debt/ Total assets + Rs*(Total assets - debt)/ Total assets

WORKINGS

jeff jeffy answered 2 years ago

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