Chapter 12 Assignment 3. Determining the optimal capital structure Review the following situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio (%) Equity Ratio (%) WACC (%) 8.61 30 40 8.21 7% 7.00 7.20 7.70 8.90 10.30 7% 10.50 10.80 11.40 12.20 13.50 8.01 8.08 8.38 Which capital structure shown in the preceding table is Universal Exports Inc.'s optimal capital structure? O Debt ratio = 60%; equity ratio = 40% O Debt ratio = 50%; equity ratio = 50% O Debt ratio = 30%; equity ratio = 70% O Debt ratio = 40%; equity ratio = 60% O Debt ratio = 70%; equity ratio = 30% 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 Save & Continue Grade It Now Continue without savi