Eps and capital structure

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Reference no: EM1336934

Calculation of Share Value

Estimates Associated with

Alternative capital Structures

Capital Structure Expected Estimated Estimated

Debt Ratio EPS Required Return Share Value
0% $1.75 11.40%
10 1.90 11.80%
20 2.25 12.50%
30 2.55 13.25%
40 3.18 18.00%
50 3.06 19.00%
60 3.10 25.00%

Given the above estimates of EPS and required rates of return based on increasing levels of debt for this organization, calculate the estimated share price value for each level.

Assuming the organization makes decisions considering how best to maximize shareholder wealth, at what debt ratio will this objective be realized?

Reference no: EM1336934

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