Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Understanding the optimal capital structure
Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis.
Debt Ratio
|
Equity Ratio
|
rdrd
|
rsrs
|
WACC
|
---|---|---|---|---|
30% | 70% | 7.00% | 10.50% | 8.61% |
40% | 60% | 7.20% | 10.80% | 8.21% |
50% | 50% | 7.70% | 11.40% | 8.01% |
60% | 40% | 8.90% | 12.20% | 8.08% |
70% | 30% | 10.30% | 13.50% | 8.38% |
Which capital structure shown in the preceding table is Universal Exports Inc.’s optimal capital structure?
Debt ratio = 50%; equity ratio = 50%
Debt ratio = 30%; equity ratio = 70%
Debt ratio = 60%; equity ratio = 40%
Debt ratio = 70%; equity ratio = 30%
Debt ratio = 40%; equity ratio = 60%
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