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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% $3.30 $33.25
30% 3.60 36.00
40% 3.80 37.25
50% 3.50 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.
_________%
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