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.