Reference no: EM132933992

Problem 1: Which of the following events encourage a company to raise its target debt ratio, other things held constant?

Option 1: An increase in the personal tax rate.

Option 2: An increase in the company's operating leverage.

Option 3: An increase in the corporate tax rate.

Option 4: The Federal Reserve tightens interest rates in an effort to fight inflation.

Problem 2: Based on the information below, what is Ezzel Enterprises' optimal capital structure?

Option 1: Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.

Option 2: Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.

Option 3: Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.

Option 4: Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.

Option 5: Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.