1. 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%	$3.15	$34.75
30	3.50	36.25
40	3.75	38.00
50	3.50	32.25

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.

2.

UNLEVERED BETA

Hartman Motors has $10 million in assets, which were financed with $4 million of debt and $6 million in equity. Hartman's beta is currently 1.05, and its tax rate is 35%. Use the Hamada equation to find Hartman's unlevered beta, bU. Do not round intermediate calculations. Round your answer to two decimal places.

bU =

3.

BREAK-EVEN ANALYSIS

The Warren Watch Company sells watches for $22, fixed costs are $130,000, and variable costs are $10 per watch.

What is the firm's gain or loss at sales of 10,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent. $ What is the firm's gain or loss at sales of 20,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent. $

What is the break-even point (unit sales)? Round your answer to the nearest whole number. units

What would happen to the break-even point if the selling price was raised to $33? The result is that the break-even point remains unchanged.

The result is that the break-even point is lower.

The result is that the break-even point is higher.

What would happen to the break-even point if the selling price was raised to $33 but variable costs rose to $21 a unit? Round your answer to the nearest whole number.

The result is that the break-even point remains unchanged.

The result is that the break-even point increases.

The result is that the break-even point decreases.