Question
XYZ inc. is setting its target capital structure. The CFO of XYZ Inc. believes that the optimal debt-to-capital ratio is between 25 percent and 60
XYZ inc. is setting its target capital structure. The CFO of XYZ Inc. believes that the optimal debt-to-capital ratio is between 25 percent and 60 percent. Her staff derived following the projections. Various debt levels were considered.
| Dept/Capital Ratio | Projected EPS | Projected Stock Price |
|---|---|---|
| 25% | $4.20 | $40.00 |
| 35% | $4.45 | $41.50 |
| 45% | $4.75 | $41.25 |
| 60% | $4.50 | $40.59 |
Assuming that the firm uses only debt and common equity, what is XYZ's optimal capital structure? At what debt-to-capital ratio is the company's WACC minimized?
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Understanding Housing Finance
Authors: Peter King
2nd Edition
0415432952, 978-0415432955
