OPTIMAL CAPITAL STRUCTURE   Jackson Trucking Company is the process of setting its target capital structure. The CFO belives 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 Projected Stock Price  20% $3.20 $35.00 30 3.45 36.50 40 3.75 36.25 50 3.50 35.50 Assuming that the firm uses only debt and common equity, what is Jackson's Optimal Capital structure? At what debt-to-capital ratio is the company's WACC Minimized?

Fundamentals of Financial Management (MindTap Course List)
14th Edition
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter10: The Cost Of Capital
Section: Chapter Questions
Problem 3TCL: CALCULATING 3Ms COST OF CAPITAL In this chapter, we described how to estimate a companys WACC, which...
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OPTIMAL CAPITAL STRUCTURE  

Jackson Trucking Company is the process of setting its target capital structure. The CFO belives 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 Projected Stock Price 
20% $3.20 $35.00
30 3.45 36.50
40 3.75 36.25
50 3.50 35.50

Assuming that the firm uses only debt and common equity, what is Jackson's Optimal Capital structure? At what debt-to-capital ratio is the company's WACC Minimized?

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