Score: 0 of 1 pt 9 of 9 (0 complete) HW Score: 0%, 0 of 9 pts Question Help P13-24 (similar to) Integrative-Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $9,700,000, EBIT of $1,980,000, and preferred dividends of $199,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio 0% 15 30 45 60 Cost of debt, 0% 8.3 9.1 11.7 14.9 Number of common stock shares 198,000 167,000 140,000 111.000 82.000 Required return, I's 11.8% 12.9 13.8 16.1 19.9 a. Calculate earnings per share for each level of indebtedness. b. Use the equation Po = EPS/rs and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. c. Choose the optimal capital structure. Justify vour choice. a. Calculate earnings per share for each level of indebtedness. Calculate the EPS below: (Round to the nearest dollar. Round the EPS to the nearest cent.) Debt Ratio 0% EBIT $ 1,980,000 Less: Interest $ CDT Enter any number in the edit fields and then click Check Answer. 10 parts Clear All Check Answer remaining Capital structure Number of common debt ratio Cost of debt, rd stock shares Required return, r's 0% 0% 198,000 11.8% 15 8.3 167,000 12.9 30 9.1 140,000 13.8 45 11.7 111,000 16.1 60 14.9 82,000 19.9 a. Calculate earnings per share for each level of indebtedness. b. Use the equation Po=EPS/r, and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. c. Choose the optimal capital structure. Justify vour choice. EBT $ Taxes @40% Net profit $ Less: Preferred dividends Profits available to common stockholders Enter any number in the edit fields and then click Check Answer. $ $ Capital structure Number of common debt ratio Cost of debt, rd stock shares Required return, rs 0% 0% 198,000 11.8% 15 8.3 167,000 12.9 30 9.1 140,000 13.8 45 11.7 111,000 16.1 60 14.9 82,000 19.9 a. Calculate earnings per share for each level of indebtedness. b. Use the equation Po=EPS/rs and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness c. Choose the optimal capital structure. Justify vour choice. Less: Preferred dividends $ Profits available to common stockholders #shares outstanding 198,000 EPS $ $ Enter any number in the edit fields and then click Check Answer. 10 parts Clear All remaining
