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: Debt/Capital Ratio Projected EPS $3.25 20% 30 40 50 3.40 3.85 37.50 3.55 33.25 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 Projected Stock Price $34.25 37.75 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. %
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: Debt/Capital Ratio Projected EPS $3.25 20% 30 40 50 3.40 3.85 37.50 3.55 33.25 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 Projected Stock Price $34.25 37.75 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. %
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
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Transcribed Image Text: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:
Debt/Capital Ratio Projected EPS
$3.25
3.40
20%
30
40
50
3.85
% debt
% equity
Projected Stock Price
$34.25
37.75
37.50
3.55
33.25
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.
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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