8- Assume the company needs to maintain a price per share $30 with EPS 12% from the price and a cost of capital no more than 8%, knowing that the company can borrow at any level of debt at an interest rate before tax 9.5%. Then how much should be the approximate level of debt for the company to reach its target. *

72.48%

27.52%

63.49%

36.51%

None of the above

Problem One MMM Co. has unleveraged beta 1.2, risk free rate 5%, and market risk premium for 4%. It works in the 40% tax bracket. The company is intending to build a new plant, and is studying the scenarios to finance it; The first scenario (1) is to finance the plant totally from equity, without any debt, and then the expected earnings per share will be to $2.7/share. The second scenario(2) is to finance the plant from a combination of debt and equity, where it is intending to borrow 30% of the budget with an interest rate of 9% before tax, then the expected earnings per share will increase to $3.2/share. Required: Use the given above to answer questions 1 through 8