Question

Capital Structure, the cost of capital, and stock price WACC = Wd (ra) (1-T) + W, (rs) T= 0.40 0.06 rm = 0.10 Capital Structure (Debt/Assets= Wd) rd D/E Beta rs WACC Value 8.0% 8.3% 9.0% 10.0% 12.0% 10% 1.60 0.2500 30% 40% 1.0000

Answer 1

As in some cases debt by assets is given so we can calculate remaining equity portion as Assets - Equity = Debt

In some Cases debt / equity is given so we can calculate total assets, debt and equity portion

As beta is given at one point but beta won't get change it will be same in every debt equity composition.

Return on Equity = rf + b ( rm - rf) =

rf = 6 % given

rm = 10% given

beta = 1.6 given

Return on Equity = 6 + 1.6 ( 10 -4) = 12.4%

WACC = Wd (Rd) (1-t) + Ws (Rs) where t=0.40

I think some information is missing to calculate last part which is stock price or value as we need payout ratio or dividend value to calculate stock price or value. Rest information is updated in table below.

Debt / Assets	Equity by Assets	Debt/ Equity	Rate of Debt	Beta	Return on Equity	WACC	Price
	1		0	1.6	12.4	12.4
0.1	0.9	0.111111111	8	1.6	12.4	11.64
0.2	0.8	0.25	8.3	1.6	12.4	10.92
0.3	0.7	0.428571429	9	1.6	12.4	10.3
0.4	0.6	0.666666667	10	1.6	12.4	9.84
0.5	0.5	1	12	1.6	12.4	9.8

Hope this helps. Thanks and have a good day.