solution
solution.
Please use Company Financial Statements and subsequent calculations below for this problem. Please note, you may or may not need all of this information:
| Historical Balance Sheet | ||
| All values USD Millions. | ||
| Total Assets | 9132.00 | |
| Total Liabilities | 6,894 | |
| Total Equity | 2,238 | |
| Liabilities & Shareholders’ Equity | 9,132 | |
| Historical Income Statement | ||
| Fiscal year is January-December. All values USD Millions. | 2020 | |
| Sales/Revenue | 8,150 | |
| Pretax Income | 1495 | |
| Income Tax | 220 | |
| Net Income | 1279 | |
| EBIT | 1809 | |
| Market Value of Equity (Market Cap) | 37280 | |
| Company Debt | 4650.5 |
| Weight of Equity = E / (E+D) | 0.889090280 |
| Weight of Debt = D / (E+D) | 0.110909720 |
| Cost of Equity = Rrf+(B*RPm) | 7.04% |
| Cost of Debt = | 2.8783% |
| Effective Tax Rate = | 14.72% |
| Current WACC= | 6.5315% |
The company is considering changing the current capital structure to 40% debt and 60% equity, how would this impact the company’s cost of capital? Demonstrate the impact this would have on your company specifically. Would you recommend this change? Why or why not?
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