What is Routers optimal capital structure? Is the same debt ratio optimal regardless of whether the firm chooses operating Plan L or H? Does this optimal D/V ratio minimize risk as measured by either the coefficient of variation of ROE or the times interest earned ratio?Does it maximize the firms earnings per share? If not, then what is optimal about the optimal D/V ratio?

Table 1. Financial Statements and Other Data on Router and PNC Balance Sheets, 12/31/04 Router Inc. PNC $252,351 $11,125,200 Current assets $1,012,969 $18,097,800 Net fixed assets $1,265,320 $29,222,000 Total assets $0 $1,241,10 Current liabilities $0 Long-term debt $0 Total liabilities n.400 sa $2,206,400 Preferred Stock 8,510,490 $1,000,000 Common stock Retained earnings $8,026,000 205 320 $16,536,490 Total common equity (50,000 shares for Router) ZZ$1205.20 29,223,290 Total liabilities and equity Income Statements, 2004 Router Inc. PNC Sales Revenues $3,556,000 $82,739,300 $3,247,505 $74,727,413 Operating costs $76,000 Depreciation 3,619,560 $232,495 $4,392,327 Operating income (EBIT) $0 693,000 Interest $232,495 $3,699,327 Taxable income $92,998 Taxes 1,479,731 $0 Preferred dividends 132,000 $139,497 $2,087,596 Net Income for common $109,497 $1,507,000 Free Cash Flow (FCF) Router PNC Industry Other Financial Data: 200 Shares outstanding 50,000 2,626,180 NIA $2.79 $0.79 Earnings per share NIA Dividends per share $0.00 NIA Dividend payeut rau 0% 20% $139,497 NOPAT $2,635 NIA Free Cash Flow $109,497 $1,507 NIA ROE 11.02% 12.62% 14.7% Stock Price of Year NIA $21.00 NIA $12,653 Book val per share $6.30 NIA PI NIA 26.42 30.10 Pricel Book ratio NIA 3.34 4.20 NIA 1.35 1.35 Beta Coefficient Market Risk Premium 5.00% 5.00% 5.00% 4.80% 4.80% 4.80% Risk-Free Rate N/A NIA 8.30% Dividend growth rate 0.0% 35.9% 35.2% Debt/Assets 0.0% 7.6% 3.1% Preferred stock/Assets 100% 56.6% 61.7% Common equitylAssets Tax rate (Federal State) 40% 40% 40% Interest rate on all debt NIA 7.5% 7.2% Preferred dividend yield NIA 6.0% NIA