JTC is in the process of setting its target capital structure. The CFO believes that the option debt-to-capital ratio is somewhere between 30% and 70%. The JTC staff has compiled the following projections for EPS and the WACC at various debt levels. Assuming that the firm used only debt and common equity, what is JTCs optimal capital structure?

Debt/Capital Ratio Projected EPS WACC

20% $1.20 9%

30% $1.25 8%

40% $1.30 7%

50% $1.35 9%

60% $1.25 10%

60%

70%

50%

40%