Chapter $13$: Leverage and Capital StructureIntegrative: Optimal capital structureNelson Corporation has made the following forecast of sales, with the associated probabilities of occurrence notedSales$$200,000$$$300,000$$$400,000$Probability$0\mathrm{.}200\mathrm{.}600\mathrm{.}20$The company has fixed operating costs of $$100,000$ per year, and variable operating costs represent $40\%$ of sales. The existing capital structure consists of $25,000$ shares of common stock that have a $$10$ per share book value. No other capital items $($No debt and no preferred stock$)$ are outstanding. The marketplace has assigned the following required return to risky earnings per share $($EPS$).$Coefficient of variation of EPSEstimated required return, ks$0\mathrm{.}4315\%0\mathrm{.}4716\%0\mathrm{.}5117\%0\mathrm{.}5618\%0\mathrm{.}6023\%0\mathrm{.}6425\%$The company is contemplating shifting its capital structure by substituting debt in the capital structure for common stock. The three different debt ratios under consideration are shown in the following table, along with an estimate, for each ratio, of the corresponding required interest rate on all debt.Debt ratioInterest rate on all debt$20\%10\%40\%12\%60\%14\%$The tax rate is $40\%.$ The market value of the equity for a leveraged firm can be found byusing the simplified method $($see Equation $13\mathrm{.}12$ on textbook page $547,$ Po $=$ EPS$/$ks$)$ A$.$ Calculate the expected earnings per share $($EPS$),$ the standard deviation of EPS, and the coefficient of variation of EPS for the three proposed capital structures.$(35$ points$)[$Complete the tables$]$B$.$ Determine the optimal capital structure, assuming $(1)$ maximization of earnings per share $($EPS$)$ and $(2)$ maximization of share value. $(10$ points$)[$Complete the table and blanks$]$Debt RatioE$($EPS$)0\%20\%40\%60\%$E$($EPS$)$: Expected EPSCVEPS$)$Estimated required return, ksShare PriceCV$($EPS$)$: Coefficient of variation of EPS$(1)$ Optimal capital structure assuming maximization of E$($EPS$)$:$\%$ Debt,$\%$ Equity$(2)$ Optimal capital structure assuming maximization of share value $($price$)$:$\%$ Debt,$\%$ EquityC. Construct a graph $($similar to Figure $13\mathrm{.}7$ on textbook page $548,$ PowerPoint Slide #$13-62)$ showing the relationships in part B$.($Note: You will probably have to sketch the lines because you have only four data points.$)(5$ points$)$