Attempts: Average: 76 4. Determining the optimal capital structure Aa Aa E Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio 30% 70% 40% 60% 50% 50% 60% 40% 70% 30% ra 6.02% 6.75% 7.15% 7.55% 8.24% r 's 9.40% 9.750% 10.60% 11.30% 12.80% WACC 9.71% 9.55% 10.02% 10.78% 11.45% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? O Debt ratio = 40%, equity ratio = 60% Debt ratio = 70%; equity ratio = 30% Debt ratio = 50%; equity ratio = 50% Debt ratio = 60%, equity ratio = 40% Debt ratio = 30%, equity ratio = 70% O The optimal capital structure is the one that the WACC and the firm's stock price. Higher debt levels the firm's risk. Consequently, higher levels of debt cause the firm's cost of equity to Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? O Debt ratio = 40%; equity ratio = 60% Debt ratio = 70%, equity ratio = 30% Debt ratio = 50%, equity ratio = 50% Debt ratio = 60%; equity ratio = 40% Debt ratio = 30%; equity ratio = 70% O The optimal capital structure is the one that the WACC and the firm's stock price. Higher debt levels the firm's risk. Consequently, higher levels of debt cause the firm's cost of equity to Axis Chemical Co. has found that its expected EPS is maximized at a debt ratio of 45%. Does this mean that Axis Chemical Co.'s optimal capital structure calls for 45% debt? Yes