Question: Please help me with Leverage and capital structure
capital structure
(debt ratio) |
expected earnings
per share |
investor required
return Rs. |
| 0% |
18.72 |
11% |
| 10% |
23.40 |
13% |
| 20% |
28.80 |
14% |
| 30% |
32.64 |
15% |
| 40% |
33.06 |
17% |
| 50% |
30.00 |
18% |
| 60% |
26.40 |
20% |
Provided the forecast above concerning the effects of various capital structure on its expected earnings-per-share and the rate of return required by investors
a) using the capitalized earnings method(eps/rs) compute the estimated share values associated with each of the capital structures.
b) select the optimal Capital structure based on:
1- maximization of expected earnings-per-share
2- maximization of share value.
c) which capital structure do you recommend? why?
d) explain whyExtremely high or low levels of debt are less desirable in term other that earnings per share or share value