GE Corp. is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no debt and has a beta of 1.5.
The riskless interest rate is 9%, and the risk premium is 8.3%.
Your research indicates that the debt rating will as follows at different debt levels: The firm currently has 1 million shares outstanding at $ 20 per share. (Tax rate = 40%) What is the firm's optimal debt ratio?
