Question: A firm is analyzing two possible capital structures30 and 50 percent debt ratios. The firm has total assets of $5,000,000 and common stock valued at

 A firm is analyzing two possible capital structures30 and 50 percent

A firm is analyzing two possible capital structures30 and 50 percent debt ratios. The firm has total assets of $5,000,000 and common stock valued at $50 per share The firm has a marginal tax rate of 40 percent on ordinary income. If the interest rate on debt is 7 percent and 9 percent for the 30 percent and the 50 percent debt ratios, respectively, the amount of interest on the debt under each of the capital structures being considered would be O A. 30 percent debt ratio: $245,000 and 50 percent debt ratio: $225,000 OB. 30 percent debt ratio: $135,000 and 50 percent debt ratio: $175,000 O C. 30 percent debt ratio: $105,000 and 50 percent debt ratio: $250,000 OD. 30 percent debt ratio: $105,000 and 50 percent debt ratio: $225,000

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!