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What is the optimal capital structure for zpc

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Question - Zippy Pasta Corporation (ZPC) has a constant growth rate of 7 percent. The company retains 30 percent of its earnings to fund future growth. ZPC's expected EPS (EPS1) and ks for various capital structures are given below.

Debt/Total Assets (%)

Expected EPS (RM)

ks (%)

20%

$2.50

15.0%

30

3.00

15.5

40

3.25

16.0

50

3.75

17.0

70

4.00

18.0

Required - What is the optimal capital structure for ZPC? Show all of your working and explain your answer.

Reference no: EM133027241

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