Financing plans for a project are summarized below for Encore Productions.

(a) Using a spreadsheet, plot the WACC and indicate the D-E mix with the lowest WACC.
(b) Yesterday, the president of Angkor Bank, the bank that usually makes loans to Encore, in­formed the CFO that interest rates on all loans will increase by 1% per year immedi­ately due to economic instability. Encore’s CFO does not want the WACC to exceed 9.9% for this project. Using a spreadsheet, update the rates for debt capital, determine the D-E mix with the lowest WACC, and determine for this spe­cific D-E mix the percentage debt capital that must not be exceeded to ensure that the WACC is at 9.9%. Determine this maximum limit on debt capital using Goal Seek.


(a) Top part of the spreadsheet image indicates a D-E mix of 50%-50% to have the
lowest WACC at 9.7%. Graph is included.

(b) Lower image shows updated WACC values. D-E mix of 35%-65% has lowest WACC
of 10.19%. Row 27 is a repeat of the 35%-65% analysis. Goal Seek results in:

Maximum debt percentage of 10.15% to obtain WACC = 9.9%. The D-E mix is
10.15%-89.85%

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