French vanilla : current revenue of $ 3.15 per unit and cost of $ 1.38 per unit
Strawberry : current revenue of $ 3.25 per unit and cost of $ 1.41 per unit Chocolate : current revenue of $ 3.25 per unit and cost of $ 1.57 per unit
Mint chocolate : current revenue of $ 3.25 per unit and cost of $ 1.63 per unit
Wild berry : projected revenue of $ 3.25 per unit and cost of $ 1.44 per unit
Find the annual erosion of revenue , the cost savings , and the net cash flow with the new ice cream .
Ch 11 Advanced problem 1
Changing WACC and optimal choice . Austin Enterprises is currently an all-equity firm . The firm is considering selling debt ( bonds ) and retiring some of the equity . However , at each level of debt , debt becomes more expensive ( cost of debt is rising ), and the riskiness of the equity also rises with more and more debt . Using a spreadsheet , determine the best combination of debt and equity for Austin Enterprises if
· The current beta of Austin Enterprises is 0.85 .
· The current market return is 12 %.
· The current risk-free rate is 3 %.
· The total equity is 20,000,000 shares at $ 25 per share .
· Debt is sold in units of $ 2,000,000 .