Explain what is meant by the optimal capital structure? The following is an extract from Drummer plc

Explain what is meant by the optimal capital structure?

 

 

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The following is an extract from Drummer plc financial statements: Financial Position Statement as at 31st December 000 Non-Current Assets 94,537 Current Assets 49,648 Current Liabilities 15,235 6% Bonds (redeemable in 8 years) 9,450 10% Irredeemable Bonds 16,500 Bank Loans 10,100 92,900 Ordinary shares (1 par value) 30,500 12% preference shares (1 par value) 29,300 Reserves 33.100 92,900 Notes: 1. The current dividend, shortly to be paid, is 82c per share. Dividends in the future are expected to grow at 5% per annum. 2. Corporation Tax currently stands at 28% 3. The interest on Bank Borrowings currently stands at 8% 4. Stock Market Prices as at 31st December (all ex-div or ex-interest): Ordinary shares Preference Shares 6% Bonds 6.25 1.05 104 per 100 bond 10% irredeemable bonds 98 per 100 bond The following is an extract from Drummer plc financial statements: Financial Position Statement as at 31st December 000 Non-Current Assets 94,537 Current Assets 49,648 Current Liabilities 15,235 6% Bonds (redeemable in 8 years) 9,450 10% Irredeemable Bonds 16,500 Bank Loans 10,100 92,900 Ordinary shares (1 par value) 30,500 12% preference shares (1 par value) 29,300 Reserves 33.100 92,900 Notes: 1. The current dividend, shortly to be paid, is 82c per share. Dividends in the future are expected to grow at 5% per annum. 2. Corporation Tax currently stands at 28% 3. The interest on Bank Borrowings currently stands at 8% 4. Stock Market Prices as at 31st December (all ex-div or ex-interest): Ordinary shares Preference Shares 6% Bonds 6.25 1.05 104 per 100 bond 10% irredeemable bonds 98 per 100 bond