What is true about the mix of the debt versus equity that a company uses to...
What is true about the mix of the debt versus equity that a company uses to finance its assets and strategic activities?
a. debt equity mix is not important
b. equity should exceed debt
c. debt equity mix influences cost of capital
d. None
Homework Answers
Answer: Option c is correct
Cost of debt and the cost of equity are used to calculate the cost
of capital. So, debt equity mix influences cost of capital
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What is true about the mix of the debt versus equity that a
company uses to...
QUESTION 2 A company uses only debt and equity to finance its capital budget. The company...
QUESTION 2 A company uses only debt and equity to finance its capital budget. The company uses CAPM to compute the cost of equity and estimates that WACC is 12%. The capital structure of the company is 75% debt and 25% equity. The following additional information is provided: • Risk-free rate- 6%; • Return on the market 14%; • Tax rate 20%; and • Cost of Debt 12.5%. a) Compute the beta of the company?
A common problem facing any business entity is the debt versus equity decision. When funds are...
A common problem facing any business entity is the debt versus equity decision. When funds are required to obtain assets, should debt or equity financing be used? This decision is also faced when a company is initially formed. What will be the mix of debt versus equity in the initial capital structure? The characteristics of debt are very different from those of as are the financial products. Their initial capitalization goal is Kshs. 50 million. That is, the incorporators have...
A firm's ______ is the combination of debt and equity it uses to finance its assets....
A firm's ______ is the combination of debt and equity it uses to finance its assets. capital budgeting plan business risk asset structure securitization table capital structure
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend (Do) was $1.95, its expected constant growth rate is 3%, and its common stock sells for $30. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 11%,...
A common problem facing any business entity is the debt versus equity decision. When funds are...
A common problem facing any business entity is the debt versus equity decision. When funds are required to obtain assets, should debt or equity financing be used? This decision also is faced when a company is initially formed. What will be the mix of debt versus equity in the initial capital structure? The characteristics of debt are very different from those of equity as are the financial implications of using one method of financing as opposed to the other. Cherokee...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 10% as long as it finances at its target capital structure, which calls for 30% debt and 70% common equity. Its last dividend (D0) was $2.65, its expected constant growth rate is 4%, and its common stock sells for $22. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%,...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd -9% as long as it finances at its target capital structure, which calls for 25% debt and 75% common equity. Its last dividend (De) was $2.80, its expected constant growth rate is 5%, and its common stock sells for $25. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%, and...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 35% debt and 65% common equity. Its last dividend (Do) was $2.35, its expected constant growth rate is 6%, and its common stock sells for $29. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 14%,...
QUESTION 2 A company uses only debt and equity to finance its capital budget. The company uses CAPM to compute the cost of equity and estimates that WACC is 12%. The capital structure of the company is 75% debt and 25% equity. The following additional information is provided: • Risk-free rate- 6%; • Return on the market 14%; • Tax rate 20%; and • Cost of Debt 12.5%. a) Compute the beta of the company?
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend (Do) was $1.95, its expected constant growth rate is 3%, and its common stock sells for $30. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 11%,...
The firm's target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise funds for its future projects. The target proportions of debt, preferred stock, and common equity, along with the cost of these components, are used to calculate the firm's weighted average cost of capital (WACC). If the firm will not have to issue new common stock, then the cost of retained earnings is used in the firm's WACC calculation. However, if...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd -9% as long as it finances at its target capital structure, which calls for 25% debt and 75% common equity. Its last dividend (De) was $2.80, its expected constant growth rate is 5%, and its common stock sells for $25. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 15%, and...
Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of rd = 11% as long as it finances at its target capital structure, which calls for 35% debt and 65% common equity. Its last dividend (Do) was $2.35, its expected constant growth rate is 6%, and its common stock sells for $29. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 14%,...
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