Business, 16.03.2020 18:54 chops85

Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt-to-capital ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels:

Debt/Capital Ratio Projected EPS Projected Stock Price
20% $3.15 $35.00
30 3.60 35.75
40 3.70 37.00
50 3.55 32.25

Required:
a. Assuming that the firm uses only debt and common equity, what is Terrell's optimal capital structure?
b. At what debt-to-capital ratio is the company's WACC minimized?

Answers: 1

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Terrell Trucking Company is in the process of setting its target capital structure. The CFO believes...

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