Based on the information below for Benson Corporation, what is the optimal capital structure?
A) debt = 50%; equity = 50%; eps = $3.05; stock price = $28.90.
B) debt = 60%; equity = 40%; eps = $3.18; stock price = $31.20.
C) debt = 80%; equity = 20%; eps = $3.42; stock price = $30.40.
D) debt = 70%; equity = 30%; eps = $3.31; stock price = $30.00.
E) debt = 40%; equity = 60%; eps = $2.95; stock price = $26.50.

Question

Quizplus · Accepted Answer

The optimal capital structure is the one that maximizes the value of the firm and minimizes the cost of capital. Based on the given information, the highest EPS and stock price are associated with Choice B (debt = 60%; equity = 40%), indicating that this capital structure is generating the most value for the shareholders. Additionally, a debt-to-equity ratio of 60%/40% strikes a balance between the benefits and risks of debt financing. Therefore, Choice B is the best option.

Based on the Information Below for Benson Corporation, What Is