### Substituting debt in the capital structure for common stock

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Golden Inc. is considering shifting its capital structure by substituting debt in the capital structure for common stock. At the debt ratio of 30%, the firm estimates that te average earnings per share (EPS) would be \$3.12 and the standard deviation of EPS would be \$2.83. If the marketplace has assigned the following required rate of returns to risky EPSs, what would be the stock price at this debt ratio level? (Assume the zero-growth for the firm's earnings)

Coefficient of variation of EPS Estimated required rate of return

0.74 16%

0.78 18%

0.83 21%

0.91 24%

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