I need some help in estimating the Optimal Debt Ratio with steps.
DEBT RATIO EPS STANDARD DEVATION OF EPS
0% $2.30 $1.15
20% $3.00 $1.80
40% $3.50 $2.80
60% $3.95 $3.95
80% $3.80 $5.53
Estimate the optimal debt ratio on the basis of the relationship between
Earnings per share and the debt ratio. You may find it helpful to graph the
This solution shows step-by-step calculations to determine the CV of EPS and Price to determine the maximum EPS of debt ratio and share earnings. It also provides a suggestion on the optimal cap structure.