Answer :
Seduak has estimated the costs of debt and equity capital for various proportions of debt in its capital structure: % of debt cost of debt (%) cost of equity (%) 0 - 13.0 10 5.4 13.3 20 5.4 13.8 30 5.8 14.4 40 6.3 15.2 50 7.0 16.0 60 8.2 17.0 based on these estimates, determine Seduak's optimal capital structure.50% debt.
The cost of debt is calculated by observing this rate of interest the firm must pay on new borrowing or the rate on similarly rated bonds.The weighted cost of capital (WACC) measures a firm's cost of capital, e.g. what it costs to finance firm assets.
WACC consists of the weighted average of the assorted styles of capital a firm can use to finance its operations—debt, preferred shares, retained earnings, and external equity. Next, divide your total interest by your total debt to urge your cost of debt. The minimum rate of return necessary to draw in an investor to get or hold a security is termed the value of capital.
The weighted cost of capital is computed using before-tax costs of every of the sources of financing that a firm uses to finance a project. The weighted price of capital (WACC) is the cost of the entity's finance (equity, bonds, bank loans, and preference shares) weighted per the proportion each element bears to the entire pool of funds.
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