Consider what would happen if Aspeon’s business risk were considerably different than that used to estimate the financial leverage/capital cost relationship given in the case. a. Describe how the analysis would change if Aspeon ‘s business risk were significantly higher than originally estimated. If you were using the Lotus model for this case, assume that the following set of leverage/cost estimates applies:using the Lotus model for this case, assume that the following set of leverage/cost estimates applies:
Amount Borrowed (in Millions of Dollars) Cost of Debt Cost Equity $0.0 0.0% 17.0% 25.0 11.0 18.0 50.0 13.0 20.0 75.0 16.0 23.0 100.0 20.0 27.0 125.0 25.0 32.0
What would be Aspeon’s optimal capital structure in this situation?   b. How would thins change if the firm’s business risk were considerably lower than originally estimated? If you are using the Lotus model for this case, assume that the following set of leverage/cost astimates applies:
Amount Borrowed (in Millions of Dollars) Cost of Debt Cost Equity $0.0 0.0% 14.0% 25.0 8.0 14.3 50.0 8.5 15.0 75.0 9.5 16.0 100.0 11.5 17.5 125.0 13.5 19.0
What would be the firm’s optimal capital structure in this situation?