Cost of equity for various capital structures

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Dilbert Jones Corporation (DJC) has a projected stable growth rate of 5.5%. The company retains 25% of its earnings to fund future growth. DJC's expected EPS (EPS1) and Cost of Equity (Rs) for various capital structures are given below. What is the optimal capital structure for DJC?

Debt/Total Assets   Expected EPS           Rs  

20%                   $3.50                        15.0%

30%                   $4.00                         15.5%

40%                  $4.25                         16.0%

50%                  $4.75                         17.0%

60%                  $5.00                         18.0%

Reference no: EM131559764

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