From the information below,select the optimal capital structure for Minnow Entertainment Company.
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 optimal capital structure for a company is the one that balances the costs and benefits of both debt and equity financing. In this case, choice C has the highest EPS and stock price, indicating that the company is performing well and investors are willing to pay a premium for its shares. Additionally, the debt-to-equity ratio is reasonable at 60:40, which suggests that the company can comfortably service its debt without taking on excessive risk. Therefore, choice C is the best option for Minnow Entertainment Company.

From the Information Below,select the Optimal Capital Structure for Minnow