1. The value of the HCA Inc. is $ 100 million with the following breakdown along with its cost: Type of Capital Market Value Cost Short Term Debt $30 million 3.5% Long Term Debt $10 million 6.0% Equity $60 million 10.0% The company has its target debt to equity ratio of 50%, and the target short term debt to long term debt is 20%. It is in the 35% tax bracket. Compute the company's WACC using the target debt to equity and the target short term debt to long term debt ratios.
Added by Kathleen R.
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Calculate the weights of each component of the capital structure: - Short Term Debt: $30 million / $100 million = 0.3 or 30% - Long Term Debt: $10 million / $100 million = 0.1 or 10% - Equity: $60 million / $100 million = 0.6 or 60% Show more…
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