1. Considering only the levels of debt discussed, what is the capital structure that minimizes GSs WACC?

2. What would be the new stock price if GS recapitalizes with $250,000 of debt? $500,000? $750,000?$ 1,000,000? Recall that the payout ratio is 100%, so g = 0.

3. Is EPS maximized at the debt level that maximizes share price? Why or why not?

4. Considering only the levels of debt discussed, what is GSs optimal capital structure?

5. What is the WACC at the optimal capital structure?

After speaking with a local investment banker, you obtain the following estimates of the cost of debt at different debt levels in thousands of dollars): Bond Rating rd Amount Borrowed $0 $250,000 $500,000 $750,000 $1,000,000 D/ Capital Ratio 0.0000 0.1250 0.2500 0.3750 0.5000 DE Ratio 0.0000 0.1429 0.3333 0.6000 1.0000 AA BBB BB 8.0% 9.0% 11.5% 14.0% After speaking with a local investment banker, you obtain the following estimates of the cost of debt at different debt levels in thousands of dollars): Bond Rating rd Amount Borrowed $0 $250,000 $500,000 $750,000 $1,000,000 D/ Capital Ratio 0.0000 0.1250 0.2500 0.3750 0.5000 DE Ratio 0.0000 0.1429 0.3333 0.6000 1.0000 AA BBB BB 8.0% 9.0% 11.5% 14.0%