Hi all,
I have already checked at the Schweser website, but they have not posted any error updates on this book yet. I’m just wondering if anyone here can take a second and see if they agree with me. Practice Book II, page. 54, question #85. It’s a simple WACC calculation for an optimal cap structure. The answer is A, but I keep getting C.
Here’s my logic. The optimal capital structure should maximize stock price, therefore expected EPS. According to Exhibit 1, Plan B has the largest expected EPS, so that is the capital structure I used. After calculating a 62% debt to cap ratio from 1.86 D/E, I end up with a 8.75% WACC, which is choice C.
Am I missing something here? Please let me know. Appreciate your time.