Question
Absolute Corporation currently has $30 million in liabilities and common equity in combination. The firm has no preferred stock. The CFO constructed the following table
Absolute Corporation currently has $30 million in liabilities and common equity in combination. The firm has no preferred stock. The CFO constructed the following table to show the CEO the effect of changing the firm's capital structure.
| Amount of Debt | ||||||||
| in the Capital | Earnings per | Market Price per | ||||||
| Structure | Share (EPS) | Share (P0) | ||||||
| $ | 9,000,000 | $ | 3.00 | $ | 112.85 | |||
| 12,000,000 | 3.80 | 116.60 | ||||||
| 15,000,000 | 4.40 | 119.25 | ||||||
According to this information, what is Absolute's optimal capital structure? Explain your answer. Round your answer to the nearest whole number.
The optimal capital structure contains % of debt because it -Select-has the lowest amount of debt in the capital structureprovides the highest market price per share of stockprovides the highest earnings per shareItem 2 .
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