Based on the information below,what is the firm's optimal capital structure?
A) Debt = 40%;Equity = 60%;EPS = $2.95;Stock price = $26.50.
B) Debt = 50%;Equity = 50%;EPS = $3.05;Stock price = $28.90.
C) Debt = 60%;Equity = 40%;EPS = $3.18;Stock price = $31.20.
D) Debt = 80%;Equity = 20%;EPS = $3.42;Stock price = $30.40.
E) Debt = 70%;Equity = 30%;EPS = $3.31;Stock price = $30.00.

Question

Quizplus · Accepted Answer

The firm's optimal capital structure is the one that maximizes the value of the company, which can be measured by the stock price. In this case, Option C has the highest stock price of $31.20, indicating that it is the optimal capital structure. Additionally, the debt-to-equity ratio is commonly used to measure the firm's financial risk, and a 60% debt to 40% equity ratio is considered reasonable for most firms.

Based on the Information Below,what Is the Firm's Optimal Capital