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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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