Purchase Solution

The answer to Optimal capital structure

Not what you're looking for?

Ask Custom Question

Based on the information below, what is the firm's optimal capital structure?

a. Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.
b. Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.
c. Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.
d. Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.
e. Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.

Purchase this Solution
Solution Summary

The solution explains how to determine the optimal capital structure.

Purchase this Solution
Free BrainMass Quizzes
Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Motivation

This tests some key elements of major motivation theories.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Basics of corporate finance

These questions will test you on your knowledge of finance.

View More Free Quizzes
Related BrainMass Solutions

  • Impact on WACC

    Explain your answer. The answer is it will increase because an optimal capital structure implies that the Weighted Average Cost of Capital (WACC) is the minimum.

  • WACC and Optimal Capital Structure

    To answer this question, do a sensitivity analysis of WACC on bU for different levels of bU. Please see the attachment The solution explains how to determine the optimal capital structure and the WACC

  • Finance: Evalulate Proposals, Payback, NPV, IRR, Optimal Capital

    Answer: Generally, capital structure that maximizes the return to shareholders must be adopted. Considering the above criteria, option D with highest EPS of $3.42 can be regarded as the optimal capital structure.

  • Optimal capital structure for firms in cyclical industries

    The answer is: Less Debt This is because a growth firm in a reasonably stable industry can afford to absorb more debt than its counterparts in cyclical industries The expert examines the optimal capital structure for firms in cyclical industries

  • Important information about Business Question

    As a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS. b. The optimal capital structure simultaneously maximizes EPS and minimizes the WACC. c.

  • Determining Optimal Capital Structure

    456862 Determining Optimal Capital Structure Determining Optimal Structure SBC Corp. Has capital structure of 30% debt and 70% equity. The firm current Beta is 1.25, but management wants to understand SBC market risk without effect of leverage.

  • Capital Structure & Optimal capital structure

    For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. Importance of Optimal capital Structure Source of Capital Recommendation: Attached is the detailed answer.

  • Optimal Capital Structure and Average Firm in Industry

    358055 Determine Optimal Capital structure compared to average firm in the industry Answer the questions below: please provide thorough, qualitative answers including some examples. 1.

  • AT&T Pre Breakup

    (Iacobucci et al 2006) To answer the question, the optimal capital structure appears to be as strong if not stronger then it was prior to the deregulation.

View More Related Solutions