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UB is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no

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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 1.5. The riskless interest rate is 9%.
Your research indicates that the debt rating will be as follows at different debt levels:
UB is examining its capital structure with the intent of

The firm currently has 1 million shares outstanding at $20 per share (tax rate = 40%).
a. What is the firm€™s 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 5% growth in perpetuity)

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
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D/(D + E) (%) Rating Interest Rate (%) 10 10.5 10 20 30 40 50 60 70 80 90 12 13 14 16 18 20

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a Optimal Debt Ratio Debt Ratio Beta Cost of Equity AT Cost of …View the full answer


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My self Mugdha Sisodiya from Chhattisgarh India. I have completed my Bachelors degree in 2015 and My Master in Commerce degree in 2016. I am having expertise in Management, Cost and Finance Accounts. Further I have completed my Chartered Accountant and working as a Professional. Since 2012 I am providing home tutions.
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Applied Corporate Finance

Applied Corporate Finance

ISBN: 978-1118808931

4th edition

Authors: Aswath Damodaran

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Question Posted: April 15, 2015 09:08:23
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