Optimo Corporation is evaluating its capital structure and attempting to optimize the value of the firm. While the debt-to-equity ratio is less than 1, the company's shareholders have indicated that they require a 13% return on equity and the bank has indicated that it will charge an after-tax rate of 8%. Once the debt-to-equity ratio exceeds I, the bank has indicated that it will require a 10% after-tax rate and the shareholders require a 15% return on equity. Of the selections listed below, Optimo Corporation's optimum capital structure is most likely to occur when the debt-to-equity ratio is: A. 0.50 B. 1,00 C. 2.00 D. 3.00
Optimo Corporation is evaluating its capital structure and attempting to optimize the value of the firm. While the debt-to-equity ratio is less than 1, the company's shareholders have indicated that they require a 13% return on equity and the bank has indicated that it will charge an after-tax rate of 8%. Once the debt-to-equity ratio exceeds I, the bank has indicated that it will require a 10% after-tax rate and the shareholders require a 15% return on equity. Of the selections listed below, Optimo Corporation's optimum capital structure is most likely to occur when the debt-to-equity ratio is: A. 0.50 B. 1,00 C. 2.00 D. 3.00
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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Optimo Corporation is evaluating its capital structure and attempting to optimize the value of the firm. While
the debt-to-equity ratio is less than 1, the company's shareholders have indicated that they require a 13%
return on equity and the bank has indicated that it will charge an after-tax rate of 8%. Once the debt-to-equity
ratio exceeds I, the bank has indicated that it will require a 10% after-tax rate and the shareholders require a
15% return on equity. Of the selections listed below, Optimo Corporation's optimum capital structure is most
likely to occur when the debt-to-equity ratio is:
A. 0.50 B. 1,00 C. 2.00 D. 3.00
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