Fm16 23 - 1,907,357 $27.25 70,000 40 1,086,957 1,630,435 $27.17 60,000 50 1,315,789 1,315,789 $26.32 50,000 The optimal capital structure is for w

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Mini Case: 16 - 23 There are some shortcuts we can take to find the values of S, P, and n after the repurchase: S = (1 – w d ) V op P = [S + (D – D 0 )] / n 0 n = n 0 – (D – D 0 )/P We apply these relationships for each possible capital structure: w d Value of Debt, D Value of Equity, S Stock Price, P Shares Outstanding, n 0% $0 2,500,000 $25.00 100,000 20% 531,915 2,127,660 $26.60 80,000 30% 817,439
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Unformatted text preview: 1,907,357 $27.25 70,000 40% 1,086,957 1,630,435 $27.17 60,000 50% 1,315,789 1,315,789 $26.32 50,000 The optimal capital structure is for w d = 30%. This gives the highest corporate value, the lowest WACC, and the highest stock price per share. But notice that w d = 40% is very similar to the optimal solution; in other words, the optimal range is pretty flat....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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