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Nico Trading Company Must Choose Its Optimal Capital Structure

question 198

Multiple Choice

Nico Trading Company must choose its optimal capital structure. Currently, the firm has a 20 percent debt ratio and the firm expects to generate a dividend next year of $5.44 per share. Dividends are expected to remain at this level indefinitely. Stockholders currently require a 12.1 percent return on their investment. Nico is considering changing its capital structure if it would benefit shareholders. The firm estimates that if it increases the debt ratio to 30 percent, it will increase its expected dividend to $5.82 per share. Again, dividends are expected to remain at this new level indefinitely. However, because of the added risk, the required return demanded by stockholders will increase to 12.6 percent. Based on this information, should Nico make the change?

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Java

A popular, high-level, object-oriented programming language designed to have as few implementation dependencies as possible, making it a widely used language for cross-platform applications.

Variable Declared

Declaring a variable refers to the process of defining a variable by specifying its type and name, making it known to the program.

Java

An object-oriented, class-based programming language at a high level, aimed at reducing implementation dependencies to the least possible extent.

Variable Values

Refers to the data or information that variables in a program hold during its execution.