Question

Based on the information below, what is the firm's optimal capital structure? a. Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50. b. Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90. c. Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20. d. Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40. e. Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00

Answer 1

Answer:

The optimal capital structure is 60% debt and 40% equity.

The correct answer is C

Explanation:

Optimal capital structure is a debt-equity mix that maximizes the stock price. Option C is a debt-equity mix that maximizes the stock price of the company.