westGas Conveyance, lne w est s onveyance, nc s a large u natural gas p peine co
ID: 1174879 • Letter: W
Question
westGas Conveyance, lne w est s onveyance, nc s a large u natural gas p peine con pany that ents aise $120 milio O financo expenson wes as wants a captal structure that s 5 % debt and 60% equity lts corporate como ned federal and s te income tax rate is 4 %, MestGR fin at t an nan ?n the dr stir U S apital marke ? th rtes lite in he popup win n Rom debt and equit would e to he sold in multiples of 20 milion and hm onst figures show the com nnen onsts, e n h af deban quity if ras 5 % b deht and 50% by equity A London bank adviscs WestGas that US dolars could bo raiscd in Eurogc at the foliowing costs, also in muitples of $20 millon, while mairtaining thc 5050 capital structurc. ra sed hal IS if w esiGes rsl arrone S2Orlilit n ura e an r"? ke at % ar ma1ich ed this mth an addi ama 20 tr li r? uf equity dddn an? debt b r und ihis amount would cu 11% in the United ales and achin erliert u coast would be r?fluenced by ne alal am unte 8% in Europe. The same relationship holds for equty inanang. apila a, Calculate the lowast avcrage cost of capital for cach incroment of $40 milion of now capital, where WestGas raises $20 milion in the cquity markct and an acdtional S20 in the debt markct at the same timc b. if w estGaes p aris ar? E ar r! ?nny S80 rralion how should that experisian btt firRn 17 what wil be the weighted averaget crest o capital or the expansin? a. If WestGas plans an cxpansion of $120 milion, what is the lownst avcragc cost of capital for thc first $40 millian of now capita? D% (Round to two decimal places) Dala Tabls CostofCsCoetfe Uomesbc Domes European uropean 7% 18% Fquity Casts of Raising Capital in the larke Ulp to $40 mllion of now capital $41 milion te} S80 milion nf new raFital Abuve S20 milir ebt 8% 11% 17% Fquity 12% 15% 24% 17% Pnnt Done Fnter your answer in the answer hox and then click Check Answer Clear All Check AnswerExplanation / Answer
a) debt market debt cost equity market equity cost average cost of capital (answer) First 40 million european 2.1 domestic 5.5 7.6 second 40 million european 2.7 european 7.5 10.2 third 40 million domestic 5.1 domestic 11 16.1 b) First 40 million european 2.1 domestic 5.5 7.6 second 40 million european 2.7 european 7.5 10.2 weighted average cost of capital 8.9
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