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A company is considering changing its capital structure. The current structure is:Debt: $500,000 at 5%...

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Accounting

A company is considering changing its capital structure. The current structure is:

  • Debt: $500,000 at 5% interest
  • Equity: $1,500,000

The proposed structure is:

  • Debt: $1,000,000 at 5% interest
  • Equity: $1,000,000
Requirements:(a) Calculate the current and proposed debt-to-equity ratios. (b) Determine the impact on the company's cost of capital. (c) Analyze the effect on the company's financial risk. (d) Discuss the implications of the change in capital structure.

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