multiple choice Q

Currently, the firm is all equity funded with 1000000 shares valued at $12 per share and the required return on equity is 9%. Income tax rate is 21%. Your banker has indicated that the following leverage restructurings are possible:

Number of shares750,000600,000500,000

Debt Leverage25.00%40.00%50.00%

Interest6.50%7.00%7.50%

ROE9.50%9.75%10.25%

Estimate which two debt restructures maximize firm value.

Group of answer choices

Choose an answer from one of the following

25%; 40%

40%; 50%

25%; 50%

0%; 25%

0%; 50%