A firm has an unlevered beta of 1.10. Assume that the tax rate is 25%, the risk free rate is 3% and the expected return on the market is 9.5%. Determine the optimal capital structure for a company based on the following information:
I have been using a spreadsheet with formulas and cell references to solve the problem but am stuck.
Leverage (Debt/Assets) | Credit Rating | Yield to Maturity (Before Tax)
10% AAA 2.2%
20% AA 2.5%
30% AA -2.9%
40% A 3.6%
50% BBB 4.6%
60% BBB -5.75%
70% BB 6.95%
80% B -8.85%
90% CCC -11.0%
This question was answered on: Dec 08, 2020
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