Integrative—Optimal capital structure Medallion Cooling Systems, Inc., has total assets of… 1 answer below »


Integrative—Optimal chief edifice Medallion Cooling Systems, Inc., has whole effects of $10,000,000, EBIT of $2,000,000, and preferred dividends of $200,000 and is taxed at a reprove of 40%. In an attempt to individualize the optimal chief edifice, the strong has assembled facts on the absorb of obligation, the enumerate of vulgar distributes for diversified razes of indebtedness, and the overall required repay on investment:

Capital edifice

 

Number of

 

obligation ratio

Cost of obligation, kd

vulgar distributes

Required repay, ks

0%

0%

200,000

12%

15

8

170,000

13

30

9

140,000

14

45

12

110,000

16

60

15

80,000

20

a. Count hues per distribute for each raze of indebtedness.

b. Use Equation 12.12 and the hues per distribute adapted in part a to count a worth per distribute for each raze of indebtedness.

c. Choose the optimal chief edifice. Justify your valuable.

Equation 12.12

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