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Unformatted text preview: 9 24 a. Find the required return associated with each of the four capital structures.
b. Compute the estimated share value associated with each of the four capital
structures using the simplified method described in this chapter (see Equation 11.12).
c. Determine the optimal capital structure based on (1) maximization of
expected EPS and (2) maximization of share value.
d. Construct a graph (similar to Figure 11.6) showing the relationships in part c.
e. Which capital structure do you recommend? Why?
LG5 LG6 11–18 Integrative—Optimal capital structure Triple D Corporation wishes to analyze
five possible capital structures—0%, 15%, 30%, 45%, and 60% debt ratios.
The firm’s total assets of $1 million are assumed to be constant. Its common
stock has a book value of $25 per share, and the firm is in the 40% tax bracket.
The following additional data have been gathered for use in analyzing the five
capital structures under consideration.
0% Interest rate...
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This document was uploaded on 03/30/2014.
- Spring '14