Zippy Pasta Corporation (ZPC) has a constant growth rate of 7 percent. The company retains 30 percentof its earnings to fund future growth.

Zippy Pasta Corporation (ZPC) has a constant growth rate of 7 percent. The company retains 30 percentof its earnings to fund future growth. ZPC’s expected EPS (EPS1) and ks for various capital structures aregiven below. What is the optimal capital structure for ZPC?

Debt/Total Assets Expected EPS ks20% RM2.50 15.0% 30 3.00 15.5 40 3.25 16.0 50 3.75 17.0 70 4.00 18.0

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