Jonkin & Co. is considering an increase it's debt. The firm's current D/A is 0.35 with a WACC of 12.90%. It is considering two possible new levels of debt.
Option 1: Issue bonds in an amount that will result in a new D/A of 0.45 with a WACC of 11.00%.
Option 2: , Issue bonds in an amount that will result in a new D/A of .50 with a WACC of 10.25%.
Which will be the optimal?
Do not issue any new debt. Maintain the current Capital Structure.
Option 1 will result in the optimal Capital Structure among the three options provided.
Option 2 will result in the optimal Capital Structure among the three options provided.