Technico Has Determined That Its Optimal Capital Structure Is 40

question 63

Multiple Choice

Technico has determined that its optimal capital structure is 40% debt, at which point its weighted cost of capital, ka, is 13.7%.Due to financial problems, the firm has decided to raise the proportion of debt to 50%, which will increase its weighted cost of capital to 14.4%.What is the effect on the stock price of Technico? The current dividend is $1.60 and the long-term growth rate of dividends is expected to be 8.5%.

• A)Decrease $3.65
• B)Decrease $3.96
• C)Increase $3.65
• D)Increase $3.96

---

Definitions:

Psychotherapist

A trained professional who treats mental health problems and emotional challenges through talking therapies and psychological treatments.

Personal Distress

A form of emotional discomfort or pain in response to the distress or suffering of others.

Self-Concept

An individual's understanding and perception of themselves, encompassing their beliefs, characteristics, and attitudes.

Incongruence

A state where there is a mismatch between one’s self-concept and reality, often leading to psychological distress.