National Co. has a constant growth rate of 5%. The company pays out 70% of its earnings. National Co.’s expected EPS and cost of equity for various capital structures are given below. What is the optimal capital structure for National Co.?
National Co. has a constant growth rate of 5%. The company pays out 70% of its earnings. National Co.’s expected EPS and cost of equity for various capital structures are given below. What is the optimal capital structure for National Co.?
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
Section: Chapter Questions
Problem 1PS
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National Co. has a constant growth rate of 5%. The company pays out 70% of its earnings. National Co.’s expected EPS and
Transcribed Image Text:Debt/Total Assets
Expected EPS retained
Cost of Equity
20%
P1.50
5.00%
30%
3.00
5.50%
40%
4.50
6.00%
50%
6.00
6.50%
Debt/Total Assets = 40%
Debt/Total Assets = 30%
Debt/Total Assets = 50%
Debt/Total Assets = 20%
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