CH 13 - Q 3

Optimal capital structure

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%	$3.10	$32.00
30	3.55	35.50
40	3.90	37.50
50	3.60	32.25

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.

%