Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that
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Question:
Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels:
Debt/Capital Ratio | Projected EPS | Projected Stock Price |
20% | $3.30 | $34.00 |
30 | 3.55 | 38.00 |
40 | 3.85 | 37.25 |
50 | 3.60 | 33.00 |
Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? Round your answers to two decimal places.
% debt
% equity
At what debt-to-capital ratio is the company's WACC minimized? Round your answer to two decimal places.
%
Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
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