The following data are available for Halcyon Industries at several capital structures. Based on this information, what is the firm's optimal capital structure?
Debt Equity EPS Stock Price
20% 80%
$2.40

$24.00

30% 70%
$2.68
$25.80
40% 60%
$2.95
$27.10
50% 50%
$3.20
$26.50
60% 40%
$3.44
$25.20

Question

The following data are available for Halcyon Industries at several capital structures. Based on this information, what is the firm's optimal capital structure?
Debt	Equity	EPS	Stock Price
20%	80%	
$2.40
	
$24.00

30%	70%	
$2.68
	$25.80
40%	60%	
$2.95
	$27.10
50%	50%	
$3.20
	$26.50
60%	40%	
$3.44
	$25.20

BlackTom AI · Accepted Answer

Stock price is the direct measure of shareholder wealth, so the optimal capital structure is the mix of debt and equity that maximizes the firm's stock price (or value). 1) Relevant knowledge points and concepts - Shareholder wealth maximization: choose the capital structure that yields the highest stock price. - EPS alone is not sufficient: higher EPS can accompany higher financial risk and a higher required return, which can lower the stock price. - Compare the given stock prices at each debt/equity mix to identify the maximum. 2) Step-by-step reasoning List the stock prices given for each capital structure: - 20% debt / 80% equity → Stock price = $24.00 - 30% debt / 70% equity → Stock price = $25.80 - 40% debt / 60% equity → Stock price = $27.10 - 50% debt / 50% equity → Stock price = $26.50 - 60% debt / 40% equity → Stock price = $25.20 3) Intermediate steps / calculations Determine the maximum value among the listed prices: - Compare sequentially: $24.00 < $25.80 < $27.10 - $27.10 compared to the remaining: $27.10 > $26.50 and $27.10 > $25.20 Thus the highest stock price is $27.10 at the 40% debt / 60% equity capital structure. 4) Why the correct answer is correct A stock price of $27.10 is the peak in the table, indicating that at 40% debt the trade-off between the tax/benefit of debt and the increased financial distress/risk is most favorable for shareholders. Although EPS continues to rise with more debt (up to $3.44 at 60% debt), the stock price falls after 40% debt because the additional leverage increases the required return or perceived risk, reducing equity value despite higher EPS. 5) Why the other options are incorrect - 20% debt (80% equity): stock price $24.00, lower than $27.10. - 30% debt (70% equity): $25.80, lower than $27.10. - 50% debt (50% equity): $26.50, lower than $27.10. - 60% debt (40% equity): $25.20, lower than $27.10. Each alternative yields a smaller stock price than the 40%/60% mix. 6) Conclusion The optimal capital structure is Debt = 40%; Equity = 60%, which matches the provided answer.

类似问题

According to Modigliani and Miller, in a world with no corporate taxes a firm cannot change its total value by altering the proportions of debt and equity in its capital structure.

Which of the following statements best describes the optimal capital structure? The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's ____.

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