M3 I run a regression of debt ratios against an independentvariable and arrive at the following:Debt-to-Capital = 0.27 + .15(PPE/Assets). If Krent Foodshas a PPE/Assets ratio of 30% (and other firms in theindustry have a PPE/Assets ratio of 60%), what is thefırm's optimal debt ratio and why?O 4.8% because of Agency CostsO 31.5% because of Agency CostsO 4.8% because of Income StabilityO 31.5% because of Income StabilityO 4.8% because of Few Inside Investors

Debt to Capital = 0.27+0.15 ( PPE/Assets) PPE/Assets Ratio=30% needs to calculate optimal debt…

Answered: Debt-to-Capital = 0.27 +…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3Q

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Debt-to-Capital = 0.27 + .15(PPE/Assets). If Krent Foods as a PPE/Assets ratio of 30% (and other firms in the ndustry have a PPE/Assets ratio of 60%), what is the irm's optimal debt ratio and why?