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B plot the two financing plans on a set of ebiteps

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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. Capital structure debt ratio 0% Expected earnings per share $3.12 Required return, ks 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 11.12). 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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