Debt/Capital Ratio 20% 30 888 40 50 Projected EPS $3.30 3.55 3.70 3.55 Projected Stock Price $32.00 38.00 35.50 34.00

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and
50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels:
Projected EPS
Debt/Capital Ratio
20%
30
40
50
Projected Stock Price
$3.30
$32.00
3.55
38.00
3.70
35.50
3.55
34.00
Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? Choose from the options provided above. Round your answers to two
decimal places.
% debt
% equity
At what debt-to-capital ratio is the company's WACC minimized? Choose from the options provided above. Round your answer to two decimal places.
Transcribed Image Text:EBOOK Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels: Projected EPS Debt/Capital Ratio 20% 30 40 50 Projected Stock Price $3.30 $32.00 3.55 38.00 3.70 35.50 3.55 34.00 Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure? Choose from the options provided above. Round your answers to two decimal places. % debt % equity At what debt-to-capital ratio is the company's WACC minimized? Choose from the options provided above. Round your answer to two decimal places.
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