A) 100-200 ms
B) 1-3 seconds
C) 450-550 ms
D) Less than 100 ms
B) 1-3 seconds
C) 450-550 ms
D) Less than 100 ms
Seven different financing plans with their D-E mixes and costs of debt and equity capital for a new innovations project are summarized below. Use the data to determine what mix of debt and equity capital will result in the lowest WACC. (Note: Problem 10.51 explores these financing plans more deeply using a spreadsheet.
What will be an ideal response?
Compute the WACC for each D-E mix. For example, the 70-30 D-E mix results in
WACC = 0.7(13%) + 0.3(7.8%)
= 11.44%
D-E Mix WACC, %
100-0 14.50
70-30 11.44
65-35 10.53
50-50 9.70
35-65 9.84
20.80 12.48
0-100 12.50
D-E mix of 50%-50% has the lowest WACC value.
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