Optimal capital structure Jackson Trucking Company is in the process of setting
ID: 2706305 • Letter: O
Question
Optimal capital structure
Jackson Trucking Company is in the process of setting its target capital structure. The CFO believes 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:
Assuming that the firm uses only debt and common equity, what is Jackson's optimal capital structure? Round your answers to two decimal places.
% debt
% equity
At what debt ratio is the company's WACC minimized? Round your answer to two decimal places.
%
Optimal capital structure
Jackson Trucking Company is in the process of setting its target capital structure. The CFO believes 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 Projected Stock Price 20% $3.25 $34.00 30 3.60 37.50 40 3.90 38.00 50 3.60 33.75Assuming that the firm uses only debt and common equity, what is Jackson's optimal capital structure? Round your answers to two decimal places.
% debt
% equity
At what debt ratio is the company's WACC minimized? Round your answer to two decimal places.
%
Explanation / Answer
Debt ratio
Projected eps
Projecte d stock price
20%
3.20
35.00
30
3.45
36.50
40
3.75
36.25
50
3.50
35.50
Debt ratio
Projected eps
Projecte d stock price
20%
3.20
35.00
30
3.45
36.50
40
3.75
36.25
50
3.50
35.50
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