Universal exports optimal capital structure

Assignment Help Financial Management

Reference no: EM131847996

Review this situation: Universal Exports Inc is trying to identify its optimal capital structure. Universal ExportsInc has gathered the following financial info to help with the analysis.

Debt Ratio: 30%, 40%, 50%, 60%, 70%

Equity Ratio: 70%, 60%, 50%, 40%, 30%

rd: 7%, 7.2% 7.7%, 8.9%, 10.3%

rs 10.5%, 10.8%, 11.4%, 12.2%, 13.5%

WACC 8.61%, 8.21%, 8.01%, 8.08%, 8.38%

What capital structure shown in the preceding table is Universal Exports Inc's optimal capital structure?

Answers:

Debt Ratio = 60% ; Equity Ratio = 40%

Debt Ratio = 40% ; Equity Ratio = 60%

Debt Ratio = 50% ; Equity Ratio = 50%

Debt Ratio = 30% ; Equity Ratio = 70%

Debt Ratio = 70% ; Equity Ratio = 30%

The optimal capital structure is the one that (Minimizes or Maximizes) the WACC and (Minimizes or Maximizes) the firms stock price. Higher debt levels (Increase or Decrease) the firms risk. Consequently, higher levels of debt cause the firms cost of equity to (Increase or Decrease).

Axis Chemical Co has found that its expected EPS is maximized at a debt ratio of 45%. Does this mean that Axis Chemical Co's optimal capital structure calls for 45% debt?

-YES

-NO

Reference no: EM131847996

Questions Cloud

Change in the bond price in dollars and percentage terms : What will be the change in the bond’s price in dollars and percentage terms?

Multinational or international analysis report : Section II. D. Multinational or International Analysis Report what your firm is doing in international operations.

What were flotation costs as a fraction of funds raised : Moonscape has just completed an initial public offering. What were flotation costs as a fraction of funds raised?

Contribute per month to reach her goal : How much money does she need to contribute per month to reach her goal?

Universal exports optimal capital structure : What capital structure shown in the preceding table is Universal Exports Inc's optimal capital structure?

How much of first monthly payment will go toward interest : The monthly payments on a $95,000 loan at 12% annual interest are $1045.95. How much of the first monthly payment will go toward interest?

What is the return on equity ratio : The Balance Sheet for 2017 has total stockholders equity of $14,749. What is the return on equity ratio for 2017?

What is the total debt ratio : What is the total debt ratio for 2017?

What annual rate of return is earned : What annual rate of return is earned on a $4,000 investment made in year 5 when it grows to $6,400 by the end of year 10?

User Account

All Pages