Company X is considering changing its capital structure in light of the tough business environment.?

Question

...  Currently, Company X&rsquo;s total capital consists of: 
&bull;$950 million in debt
&bull;$20 million in leased assets     
&bull;$500 million of preferred stock     
&bull;$900 million in common stock    
&bull;$750 million in retained earnings          

The debt coupon is 8% and tax rate is 40%, while the current preferred share price is $96.20 and the dividend per share is $9. 

The company's common stock is trading at $25.50, its dividend payout this year is $1.15, and the growth rate of the dividend is 8.5%.          

Leases are at an average cost of 8%.          

&bull;Find the weighted average cost of capital given the data above.
&bull;If Company X wants to change its capital structure (i.e., lower its WACC), what should it do?

Answer

Bankruptcy is an option that still seems to be a choice for consumers in debt. The first time you file for bankruptcy, you are facing an almost year long process. Even with the known bad side effects that come with clearing your debt by bankruptcy, most people used it in previous years. Bankruptcy can be initiated by the creditors, but it is usually done by the debtor to clear deep debt.

Company X is considering changing its capital structure in light of the tough business environment.?

Answers (1)