Melody Corp. has total assets of P10M, EBIT of P2M, and preferred dividends of P200,000...
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Melody Corp. has total assets of P10M, EBIT of P2M, and preferred dividends of P200,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled the following information: EPS Price per Cost of Debt Required return share Capital structure Debt ratio 0% 0% 12% Number of common shares 200,000 170,000 140,000 110,000 80,000 15 8 13 30 9 14 $ 5.00 5.46 5.99 6.15 5.75 $ 41.67 42.00 42.79 38.44 28.75 45 12 15 16 20 60 Discuss the leverage and risk associated with each of the structures. Your answer Choose the optimal capital structure. Justify your choice Your
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