FIN 36053 Chapter 12 Homework Use the information in the table below to find the Expected EPS, Standard Deviation of the EPS and the Coefficient of Variation at Debt/Asset Ratio of 20% and at a Debt/Asset Ratio of 40%. FIN in the foble on the next page AND SHOW ALL OF YOUR WORKI is in thousands) Debt/Assets Ratio 0% 10% 20% Total Assets $200 $200 $200 $200 $200 $200 $200 Amount Common Borrowed Stock SO $200 $20 $180 $40 $160 $60 $140 $80 $120 $100 $100 $120 $80 Shares Outstanding 10,000 9,000 8,000 7.000 6,000 5,000 4,000 Cost of Debt 0% 8.00% 8.50% 9.00% 10.00% 12.00% 15.00% 30% 40% 50% 60% In this example, when the firm borrows money, it will use that money to repurchase its shares at $20/share. Based on your findings (in the table below), If the firm were going to determine its optimal capital structure based on Expected EPS, which of these two Capital Structures would the firm prefer and why? Is there a downside to the firm to take on additional risk? Why is this NOT the BEST method to find a firm's Optimal Capital Structure? FIN 36053 Chapter 12 Homework Use the information in the table below to find the Expected EPS, Standard Deviation of the EPS and the Coefficient of Variation at Debt/Asset Ratio of 20% and at a Debt/Asset Ratio of 40%. FIN in the foble on the next page AND SHOW ALL OF YOUR WORKI is in thousands) Debt/Assets Ratio 0% 10% 20% Total Assets $200 $200 $200 $200 $200 $200 $200 Amount Common Borrowed Stock SO $200 $20 $180 $40 $160 $60 $140 $80 $120 $100 $100 $120 $80 Shares Outstanding 10,000 9,000 8,000 7.000 6,000 5,000 4,000 Cost of Debt 0% 8.00% 8.50% 9.00% 10.00% 12.00% 15.00% 30% 40% 50% 60% In this example, when the firm borrows money, it will use that money to repurchase its shares at $20/share. Based on your findings (in the table below), If the firm were going to determine its optimal capital structure based on Expected EPS, which of these two Capital Structures would the firm prefer and why? Is there a downside to the firm to take on additional risk? Why is this NOT the BEST method to find a firm's Optimal Capital Structure