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agasfer [191]
3 years ago
12

Tobang Company is in the process of setting its target capital structure. The CFO believes the optimal debt ratio is somewhere b

etween 20 and 50 percent, and her staff has compiled the following projections for EPS and the stock price at various debt levels:
Debt Ratio Projected EPS Projected Stock Price
20% $3.20 $35.00
30% $3.45 $36.50
40% $3.75 $36.25
50% $3.50 $36.00
a. Assuming that the firm uses only debt and common equity, what is Tobang's optimal capital structure?
b. At what debt-to-capital ratio is the company's WACC minimized?
Business
1 answer:
Alex787 [66]3 years ago
3 0

Answer:

The Ideal Capital structure is approximately 20% of Debt and 50% of Equity. Thus, Optimal Capital Structure of Tobang Company is 40:60.

At 40% debt ratio the company’s Weighted Average Cost of Capital (WACC) is minimized.

Explanation:

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An investor deposits 50 in an investment account on January 1. The following summarizes the activity in the account during the y
ANTONII [103]

Answer:

236.25

Explanation:

Calculation to determine X

First step is to calculate the 6 months Yield

6 month Yield=(40/40+20) (80/40+20) (157.60/80+80)+1)

6 month Yield=(40/60) (80/60) (157.60/160)-1

6 month Yield=5%

Second step is to calculate the Annual equivalent

Annual equivalent=(1.05)^2-1

Annual equivalent=10.25%

Third step is to calculate the 1 year yield

1 year yield=(40/50) (80/40+20) (175/80+80) (x/175+75)

1 year yield=(40/50) (80/60) (175/160) (x/250)-1

1 year yield=0.1025

Now Let calculate X

x(0.004667)=1+.1025

x(0.004667)=1.1025

x=1.1025/0.004667

x=236.25

Therefore X is 236.25

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myrzilka [38]

Answer:

Option (B) is correct.

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= $84,000

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podryga [215]

Answer:

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Explanation:

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