Optimo Corporation is evaluating its capital structure and attempting to optimize the value of the firm. While the debt-to-equity ratio is less than 1, the company's shareholders have indicated that they require a 13% return on equity and the bank has indicated that it will charge an after-tax rate of 8%. Once the debt-to-equity ratio exceeds I, the bank has indicated that it will require a 10% after-tax rate and the shareholders require a 15% return on equity. Of the selections listed below, Optimo Corporation's optimum capital structure is most likely to occur when the debt-to-equity ratio is: A. 0.50 B. 1,00 C. 2.00 D. 3.00
Optimo Corporation is evaluating its capital structure and attempting to optimize the value of the firm. While the debt-to-equity ratio is less than 1, the company's shareholders have indicated that they require a 13% return on equity and the bank has indicated that it will charge an after-tax rate of 8%. Once the debt-to-equity ratio exceeds I, the bank has indicated that it will require a 10% after-tax rate and the shareholders require a 15% return on equity. Of the selections listed below, Optimo Corporation's optimum capital structure is most likely to occur when the debt-to-equity ratio is: A. 0.50 B. 1,00 C. 2.00 D. 3.00
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...
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