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Unformatted text preview: 460 PART 4 Long-Term Financial Decisions f. Construct a graph similar to Figure 11.6 showing the relationships between
the debt ratio (x axis) and expected EPS (y axis) and share value (y axis).
g. Referring to the graph in part f: Which structure is preferred if the goal is to
maximize EPS? Which structure is preferred if the goal is to maximize share
value? Which capital structure do you recommend? Explain. CHAPTER 11 CASE Evaluating McGraw Industries’ Capital Structure M cGraw Industries, an established producer of printing equipment, expects
its sales to remain flat for the next 3 to 5 years because of both a weak
economic outlook and an expectation of little new printing technology development over that period. On the basis of this scenario, the firm’s management has
been instructed by its board to institute programs that will allow it to operate
more efficiently, earn higher profits, and, most important, maximize share value.
In this regard, the firm’s chief financial officer (CFO), Ron Lewis, has been
charged with evaluating the firm’s capital struct...
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This document was uploaded on 03/30/2014.
- Spring '14