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Each answer choice illustrates the relationship among Debt/Equity, rs, rd(1-T), and WACC for a specific structure of a firm. Which Debt/Equity combination is the optimal
Each answer choice illustrates the relationship among Debt/Equity, rs, rd(1-T), and WACC for a specific structure of a firm. Which Debt/Equity combination is the optimal capital structure of this firm?
OPTION A: = 0%/100%, rs = 12.00%, rd (1-T) = 0, WACC = 12.00%
OPTION B: 25%/75%, rs = 13.20%, rd (1-T) = 5.40%, WACC = 11.25%
OPTION C: 50%/50%, rs = 15.60%, rd (1-T) = 8.40%, WACC = 12.00%
OPTION D: 37.5%/62.5%, rs = 14.16%, rd (1-T) = 6.90%, WACC = 11.44%
OPTION E: 12.5%/87.5%, rs = 12.51%, rd (1-T) = 4.80%, WACC = 11.55%
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