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OPTIMAL CAPITAL STRUCTURE
Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels:
Debt/Capital Ratio Projected EPS Projected Stock Price
20% $3.25 $33.00
30 3.40 35.50
40 3.80 38.00
50 3.60 32.75
Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? Round your answers to two decimal places.
% debt
% equity
At what debt-to-capital ratio is the company's WACC minimized? Round your answer to two decimal places.
%
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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