Question

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%	7.00%	10.50%	8.61%
40%	60%	7.20%	10.80%	8.21%
50%	50%	7.70%	11.40%	8.01%
60%	40%	8.90%	12.20%	8.08%
70%	30%	10.30%	13.50%	8.38%

Which capital structure shown in the preceding table is Universal Exports Inc.’s optimal capital structure?

Debt ratio = 50%; equity ratio = 50%

Debt ratio = 40%; equity ratio = 60%

Debt ratio = 30%; equity ratio = 70%

Debt ratio = 70%; equity ratio = 30%

Debt ratio = 60%; equity ratio = 40%

Answer 1

Option a is the correct option
Debt ratio = 50%; equity ratio = 50%, WACC = 8.01%, Which is optimum WACC .

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