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Determining the optimal capital structure

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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% $3.10 $34.25

30    3.55 36.00

40    3.70 35.50

50    3.55 34.00

Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? At what debt-to-capital ratio is the company's WACC minimized?

Reference no: EM132404560

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