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:

Assuming that the firm uses only debt and common equity, what is Terrell?s optimal capital structure? At what debt-to-capital ratio is the company?s WACC minimized?

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Debt/Capital Projected Projected Stock Ratio EPS Price 20% $3.10 $34.25 30 3.55 36.00 40 3.70 35.50 50 3.55 34.00