Question 4 After analysing, the consultant provided the summary analysis. [10 Marks) Debt : Total Expected SD of Coefficient of Est. Beta Expected Price of Price of WACC (6) Tiger Company Limited's total assets are valued at $3,000,000 and currently 20% is financed by debt Assets (%) EPS ($) Expected Variance Retn (%) Equity ($) Equity (times) while 80% is from equity. The company hired a financial consultant to determine the optimal debt to EPS equity proportion. The consultant used the following information to carry out optimal capital structure. 0% $3.28 $2.07 0.63 1.40 16.60% 19.76 6.02 16.60% Debt/Total Assets (9%) 0.09% 10.096 20.0% 30.0% 40.096 50.04 60.096 70% 10% $3.51 $2.30 0.65 1.50 17.50% 20.06 5.71 16.15% Equity (S) 80% 3,000,000 2700,000 2400,000 2,100,000 1800,000 1,500,000 1200,00 900,00 600,000 20% $3.74 $2.59 0.69 1.60 18.40% 20.33 5.43 15.68% Debt ($) 300,000 600,000 900,000 1200,000 1,500,000 1,800,000 2,100,000 240,00 30% $3.97 $2.96 0.75 1.70 19.30% 20.55 5.18 15.19% No. of Shares 100.000 90,000 80,00 70,00 60,000 50,000 40.000 30,00 20,000 40% $4.19 $3.45 0.82 1.80 20.20% 20.73 4.95 14.68% Interest (9%pa) 0.0% 6.09% 6.09% 7.0% 8.09 9.0% 10.09% 12.0% 14.0% 50% $4.40 $4.14 0.94 1.90 21.10% 20.85 4.74 14.15% Beta 1.40 1.50 1.60 1.70 1.80 1.90 200 2.20 2:30 60% $4.60 $5.17 1.12 2.00 22.00% 20.91 4.55 13.60% 70% $4.21 $6.90 Other Information EBIT Projections 1.64 2.20 23.80% 17.70 4.20 13.86% Market Price of Share $30.00 EBITIS $100,000 $400,000 $800,000 80% $2.96 $10.35 3.50 2.30 24.70% 11.98 4.05 13.90% Dividend Payout 100% Probabilh 30% 45% 25% 20% Required Tax Rate Risk Free Average Market Rate 139% a) Based on the summary analysis provided by the consultants, prepare the management report (Note: Your recommendation should highlight the optimal capital structure for Tiger Company Limited). (5 Marks) b) With reference to capital structure, explain why organisations may not wish to operate at optimal level?