Determining the optimal capital structure
Understanding the optimal capital structure
Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis.
Debt Ratio
Equity Ratio
rdrd
rsrs
WACC
30% 70% 6.02% 9.40% 9.71%
40% 60% 6.75% 9.750% 9.55%
50% 50% 7.15% 10.60% 10.02%
60% 40% 7.55% 11.30% 10.78%
70% 30% 8.24% 12.80% 11.45%
Which capital structure shown in the preceding table is Universal Exports Inc.’s optimal capital structure?
A. Debt ratio = 70%; equity ratio = 30%
B. Debt ratio = 50%; equity ratio = 50%
C. Debt ratio = 30%; equity ratio = 70%
D. Debt ratio = 60%; equity ratio = 40%
E. Debt ratio = 40%; equity ratio = 60%