If Wolves Entertainment Company is acting in the best interests of stockholders

Question

If Wolves Entertainment Company is acting in the best interests of stockholders (following the primary goal of the firm), which of the following is the optimal (best) capital structure for the firm?

Debt = 80%, Equity = 20%, EPS = $3.28, Stock price = $29.70, Cost of Debt = 5.8%

Debt = 70%, Equity = 30%, EPS = $3.42, Stock price = $30.40, Cost of Debt = 5.0%

Debt = 40%, Equity = 60%, EPS = $2.95, Stock price = $26.50, Cost of Debt = 3.0%

Debt = 50%, Equity = 50%, EPS = $3.05, Stock price = $28.90, Cost of Debt = 3.5%

Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $31.20, Cost of Debt = 4.0%

Debt = 80%, Equity = 20%, EPS = $3.28, Stock price = $29.70, Cost of Debt = 5.8%

Debt = 70%, Equity = 30%, EPS = $3.42, Stock price = $30.40, Cost of Debt = 5.0%

Debt = 40%, Equity = 60%, EPS = $2.95, Stock price = $26.50, Cost of Debt = 3.0%

Debt = 50%, Equity = 50%, EPS = $3.05, Stock price = $28.90, Cost of Debt = 3.5%

Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $31.20, Cost of Debt = 4.0%

Explanation / Answer

answer is

Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $31.20, Cost of Debt = 4.0%

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