Question: GE Corp. is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no debt and has a

GE Corp. is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no debt and has a beta of 1.5. The riskless interest rate is 9%, and the risk premium is 8.3%. Your research indicates that the debt rating will as follows at different debt levels:

GE Corp. is examining its capital structure with the intent of arriving

The firm currently has 1 million shares outstanding at $ 20 per share. (Tax rate = 40%)

What is the firm's optimal debt ratio?

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