Firm Is Considering Moving to a Capital Structure That Is

question 55

Multiple Choice

firm is considering moving to a capital structure that is comprised of 40% debt and 60% equity, based on market values.The new funds would be used to replace the old debt and to repurchase stock.It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on debt to rise to 7%, while the required rate of return on equity would rise to 9.5%.If this plan were carried out, what would be AJC's new WACC and total value?

• A)7.38%; $800,008
• B)7.38%; $813,008
• C)7.50%; $813,008
• D)7.50%; $790,008
• E)7.80%; $790,008

---

Definitions:

Functional Structure

An organizational framework where departments are divided based on their function or role within the company, such as marketing, finance, and human resources.

Geographic Divisionalized Structure

An organizational structure where operations are divided based on geographic regions, with each region operating semi-autonomously to serve its local market effectively.

Divisionalized Structures

An organizational form in which the company is divided into semi-autonomous units or divisions, each responsible for its own operations and profitability.

Network Structure

An organizational design where entities are connected less hierarchically and more through a flexible arrangement of nodes, facilitating information flow and collaboration.