## FIN 370 Week 3 Question and Problem Sets

FIN 370 Week 3 Question and Problem Sets in \$21 Only

Purpose of Assignment

Students should understand and be able to calculate the net present value and internal rate of return for corporate cash flows, determine project cash flows and a company’s sales, variable costs, fixed costs, and its breakeven point.

Assignment Steps

Resources: Tutorial help on Excel® and Word® functions can be found on the Microsoft® Office website. There are also additional tutorials via the web that offer support for office products.

Complete the following Questions and Problems from each chapter as indicated.

## FIN 370 Week 5 Problem 3

FIN 370 Week 5 Problem 3

A firm’s current balance sheet is as follows:

Assets \$100                        Debt                               \$10

Equity                             \$90

a. What is the firm’s weighted-average cost of capital at various combinations of debt and equity, given the following information?

Debt/Assets          After-Tax Cost of Debt          Cost of Equity          Cost of Capital

0%                                                      8%                                             12%                                   ?

10                                                       8                                                 12                                     ?

20                                                       8                                                 12                                     ?

30                                                      8                                                 13                                      ?

40                                                      9                                                  14                                    ?

50                                                     10                                                15                                    ?

60                                                     12                                                16                                    ?

b. Construct a pro forma balance sheet that indicates the firm’s optimal capital structure. Compare this balance sheet with the firm’s current balance sheet.

What course of action should the firm take?

Assets                                 \$100                       Debt                             \$?

Equity                          \$?

c. As a firm initially substitutes debt for equity financing, what happens to the cost of capital, and why?

d. If a firm uses too much debt financing, why does the cost of capital rise?

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## Full Course FIN 370 Entire Class (Weeks 1-5) – Individual Assignments, DQs, LTAs, Final Exam

Full Course FIN 370 Entire Class (Weeks 1-5) – Individual Assignments, DQs, LTAs, Final Exam

Purchase FIN 370 Full Course + Final Exam

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