Question
Amount Borrowed Value of Equity Value of the Firm Stock Price WACC EPS 0 18,460 18,460 18.46 13.0% 2.40 $ 2 Million 17,320 19,320 19.32
Amount Borrowed | Value of Equity | Value of the Firm | Stock Price |
WACC |
EPS |
0 | 18,460 | 18,460 | 18.46 | 13.0% | 2.40 |
$ 2 Million | 17,320 | 19,320 | 19.32 | 12.42 | 2.55 |
$ 4 Million | 15,830 | 19,830 | 19.83 | 12.10 | 2.70 |
$ 6 Million | 14,020 | 20,020 | 20.03 | 11.99 | 2.54 |
$ 8 Million | 16,570 | 24,570 | 24.57 | 11.50 | 3.04 |
$10 Million | 12,000 | 22,000 | 22.00 | 12.00 | 3.20 |
NOTE: Value of the Firm is equal to the Amount Borrowed plus the Value of Equity
The amount of $8 million should be borrowed as this is the point at which the share price is maximum at $24.57.
Graphically demonstrate the optimal level of debt using the information from the table above.
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