UB is examining its capital structure with the intent of arriving at an optimal debt ratio. It
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Question:
UB 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 The riskless interest rate is Your research indicates that the debt rating will be as follows at different debt levels:
DDE Rating Interest Rate
AAA
AA
A
BBB
BB
B
CCC
CC
C
D
The firm currently has million shares outstanding at $ per share tax rate
a What is the firms optimal debt ratio? b Assuming that the firm restructures by repurchasing stock with debt, what will the value of the stock be after the restructuring? with growth in perpetuity
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