Substituting the expected eps column 1 of table 1213

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Unformatted text preview: he capital structures, we obtain the share values given in column 3 of Table 12.15. Plotting the resulting share values against the associated debt ratios, as shown in Figure 12.7, clearly illustrates that the maximum share value occurs at the capital structure associated with a debt ratio of 30%. TABLE 12.15 Calculation of Share Value Estimates Associated with Alternative Capital Structures for Cooke Company Capital structure debt ratio Expected EPS (from column 1 of Table 12.13) (1) Estimated required return, ks (from column 2 of Table 12.14) (2) Estimated share value [(1) (2)] (3) 0% $2.40 .115 $20.87 10 2.55 .117 21.79 20 2.72 .121 22.48 30 2.91 .125 23.28 40 3.12 .140 22.29 50 3.18 .165 19.27 60 3.03 .190 15.95 CHAPTER 12 Leverage and Capital Structure 541 25.00 EPS ($) Estimating Value Estimated share value and EPS for alternative capital structures for Cooke Company Estimated Share Value ($) FIGURE 12.7 3.50 3.00 2.50 2.00 Maximum Share Value = $23.28 20.00 Estimated Share Value 15.00 Maximum EPS = $3.18 0 EPS 10 20 30 40 50 Maximum Maximum Share Value EPS 60 70 Debt Ratio (%) Maximizin...
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This document was uploaded on 01/19/2014.

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