B Company stated that its optimal capital structure consists of debt taking up 30% of its total capital. B Company's existing and target capital structure is as shown. Source of Capital Target Weights Existing Weights Cost of Source Long Term Debt 30% 10% 8% Preferred Stock 15% 15% 13% Common Stock Equity 55% 75% 15% 1. Calculate the existing and target WACC of B Company2. Would you suggest B Company to increase its long term debt to 80% and decreasing common stock equity to 5% since the cost of debt seems to be lower than equity?

B Company stated that its optimal capital structure consists of debt taking up 30% of its total capital. B Company's existing and target capital structure is as shown. Source of Capital Target Weights...

B Company stated that its optimal capital structure consists of debt taking up 30% of its total capital. B Company's existing and target capital structure is as shown.

Source of Capital	Target Weights	Existing Weights	Cost of Source
Long Term Debt	30%	10%	8%
Preferred Stock	15%	15%	13%
Common Stock Equity	55%	75%	15%

1. Calculate the existing and target WACC of B Company

2. Would you suggest B Company to increase its long term debt to 80% and decreasing common stock equity to 5% since the cost of debt seems to be lower than equity?

Jun 04, 2022

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B Company stated that its optimal capital structure consists of debt taking up 30% of its total capital. B Company's existing and target capital structure is as shown. Source of Capital Target Weights...

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