Question: 2. Tiffanys second concern: a. What is the potential impact of increasing amounts of debt financing on the firms stock price and CCC. Graph the
2. Tiffanys second concern: a. What is the potential impact of increasing amounts of debt financing on the firms stock price and CCC. Graph the stock price and CCC at different levels of debt and interpret the relationships among them. b. Based on your results so far, what is the optimal capital structure?
| EBIT | $ 12,000,000 | |
| No. of shares | 10,000,000 | |
| Debt Amount | Cost of Debt | Cost of Equity |
| $0 | 0.0% | 15.0% |
| $ 2,500,000 | 10.0% | 15.5% |
| $ 5,000,000 | 11.0% | 16.5% |
| $ 7,500,000 | 13.0% | 18.0% |
| $ 10,000,000 | 16.0% | 20.0% |
| $ 12,500,000 | 20.0% | 25.0% |
| Debt Amount | Stock Price | CCC |
| $0 | $4.800 | 15.0% |
| 2,500,000 | $4.798 | 15.0% |
| 5,000,000 | $4.664 | 15.4% |
| 7,500,000 | $4.425 | 16.3% |
| 10,000,000 | $4.120 | 17.5% |
| 12,500,000 | $3.530 | 20.4% |
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