How would a financial manager determine optimal capital
structure? How this would fit in with the...
How would a financial manager determine optimal capital
structure? How this would fit in with the company's capital
expenditures, growth plans and operating results?
How would a financial manager determine optimal capital
structure? Please give a detailed explanation. How this would fit
in with the company's capital expenditures, growth plans and
operating results? Please provide examples. Please keep in mind
that inadequate answers that already exist on the web.
Aaron Athletics is trying to determine its optimal capital
structure. The company’s capital structure consists of debt and
common stock. In order to estimate the cost of debt, the company
has produced the following table:
Debt-to-total-
Equity-to-total-
Debt-to-equity
Bond B-T cost
assets ratio
(wd)
assets ratio
(wc)
ratio
(D/E)
rating of debt
0.10
0.90
0.10/0.90 = 0.11
AA 7.0%
0.20
0.80
0.20/0.80 =
0.25
A 7.2
0.30
0.70
0.30/0.70...
Flashtronics is trying to determine its optimal capital
structure. The company’s capital structure consists of debt and
common stock. In order to estimate the cost of debt, the
company has produced the following table:
Debt-to-total- Equity-to-total- Debt-to-equity Bond B-T
cost
assets ratio
(wd) assets
ratio
(wc) ratio
(D/E) rating of
debt
0.10 0.90 0.10/0.90
=
0.11 AA 6.0%
0.20 0.80 0.20/0.80
=
0.25 A 6.6
0.30 0.70 0.30/0.70
=
0.43 A 7.3
0.40 0.60 0.40/0.60
=
0.67 BB 7.9
0.50 0.50 0.50/0.50
=
1.00 B 8.7
The company’s tax rate is 35 percent.
The company currently has a D/E ratio of 20% and uses the CAPM
to estimate...
Define the capital structure puzzle and highlight if there is an
optimal capital structure. How do organizations determine their
optimal capital structure?
Which of the following statements best describes the optimal
capital structure?
a.
The optimal capital structure is the mix of debt, equity, and
preferred stock that maximizes the company's earnings per share
(EPS).
b.
The optimal capital structure is the mix of debt, equity, and
preferred stock that minimizes the company's cost of preferred
stock.
c.
The optimal capital structure is the mix of debt, equity, and
preferred stock that minimizes the company's cost of debt.
d.
The optimal capital...
9. Determining the optimal capital
structure
Understanding the optimal capital structure
Review this situation: Transworld Consortium Corp. is trying to
identify its optimal capital structure. Transworld Consortium Corp.
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...
8. Determining the optimal capital structure 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 EPS DPS Stock Price
30% 70% 1.55 0.34 22.35 40% 60% 1.67 0.45 24.56 50% 50% 1.72 0.51
25.78 60% 40% 1.78 0.57 27.75 70% 30% 1.84 0.62 26.42 Which capital
structure shown in the preceding table...
1. Determining the optimal capital
structure
Understanding the optimal capital structure
Review this situation: Transworld Consortium Corp. is trying to
identify its optimal capital structure. Transworld Consortium Corp.
has gathered the following financial information to help with the
analysis.
Debt Ratio
Equity Ratio
rdrd
rsrs
WACC
30%
70%
6.02%
9.40%
9.71%
40%
60%
6.75%
9.750%
9.55%
50%
50%
7.15%
10.60%
10.02%
60%
40%
7.55%
11.30%
10.78%
70%
30%
8.24%
12.80%
11.45%
Which capital structure shown in the preceding table is...