If Wolves Entertainment Company is acting in the best interests of stockholders

Question

If Wolves Entertainment Company is acting in the best interests of stockholders (following the primary goal of the firm), which of the following is the optimal (best) capital structure for the firm?

Question 14 options:

Debt = 50%, Equity = 50%, EPS = $3.05, Stock price = $29.90, Cost of Debt = 3.5%

Debt = 80%, Equity = 20%, EPS = $3.28, Stock price = $29.70, Cost of Debt = 5.8%

Debt = 40%, Equity = 60%, EPS = $2.95, Stock price = $30.50, Cost of Debt = 3.0%

Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $31.20, Cost of Debt = 4.0%

Debt = 70%, Equity = 30%, EPS = $3.42, Stock price = $30.40, Cost of Debt = 5.0%

Debt = 50%, Equity = 50%, EPS = $3.05, Stock price = $29.90, Cost of Debt = 3.5%

Debt = 80%, Equity = 20%, EPS = $3.28, Stock price = $29.70, Cost of Debt = 5.8%

Debt = 40%, Equity = 60%, EPS = $2.95, Stock price = $30.50, Cost of Debt = 3.0%

Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $31.20, Cost of Debt = 4.0%

Debt = 70%, Equity = 30%, EPS = $3.42, Stock price = $30.40, Cost of Debt = 5.0%

Explanation / Answer

Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $31.20, Cost of Debt = 4.0%

Since price is maximum in this case. It will maximise the value of shareholders thus it is the best capital structure of firm.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.