4. Determining the optimal capital structure

Review the following situation:

Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis.

Debt Ratio (%)	Equity Ratio (%)	rd%rd%	rs%rs%	WACC (%)
30	70	7.00	10.50	8.61
40	60	7.20	10.80	8.21
50	50	7.70	11.40	8.01
60	40	8.90	12.20	8.08
70	30	10.30	13.50	8.38

Which capital structure shown in the preceding table is Transworld Consortium Corp.s optimal capital structure?

Debt ratio = 70%; equity ratio = 30%

Debt ratio = 60%; equity ratio = 40%

Debt ratio = 50%; equity ratio = 50%

Debt ratio = 40%; equity ratio = 60%

Which of the following statements regarding a firms optimal capital structure are true? Check all that apply.

The optimal capital structure minimizes the firms WACC.

The optimal capital structure minimizes the firms cost of debt.

The optimal capital structure minimizes the firms cost of equity.

The optimal capital structure maximizes the firms stock price.

The optimal capital structure maximizes the firms EPS.