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It is 2021 and your company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is
It is 2021 and your 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 a table of 2021 projections for EPS and the stock price at various debt levels. a. Assuming that the firm uses only debt and common equity, what is the optimal capital structure for 2021 (give percentage of debt and equity)? Now, it is 2022 and your company is re-evaluating its target capital structure. The CFO now believes that the optimal capital structure is between 25% and 55%, and st aff have compiled a table of 2022 projections for EPS and WACC at various debt levels. b. Assuming that the firm uses only de bt and common equity, what is the optimal capital structure for 2022 (give percentage of debt and equity)? Worth 5 points total
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