Question
Abbys 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%
Abbys 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% | $3.25 | $33.50 |
30 | 3.40 | 37.00 |
40 | 3.70 | 35.50 |
50 | 3.60 | 33.50 |
Assuming that the firm uses only debt and common equity, what is Abby's optimal capital structure? Choose from the options provided above. Round your answers to two decimal places.
% debt % equity
At what debt-to-capital ratio is the company's WACC minimized? Choose from the options provided above. Round your answer to two decimal places.
%
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