Unformatted text preview: ssociated EPS values.
b. Plot the two financing plans on a set of EBIT–EPS axes.
c. On the basis of your graph in part b, at what level of EBIT does the bond
plan become superior to the stock plan? LG6 ST 11–3 Optimal capital structure Hawaiian Macadamia Nut Company has collected
the following data with respect to its capital structure, expected earnings per
share, and required return.
0% Expected earnings
13% 10 3.90 15 20 4.80 16 30 5.44 17 40 5.51 19 50 5.00 20 60 4.40 22 a. Compute the estimated share value associated with each of the capital structures, using the simplified method described in this chapter (see Equation
b. Determine the optimal capital structure on the basis of (1) maximization of
expected earnings per share and (2) maximization of share value.
c. Which capital structure do you recommend? Why? PROBLEMS
LG1 11–1 Breakeven point—Algebraic Kate Rowland wishes to estimate the number of
flower arrangements she must sell a...
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