Estimating the optimal capital structure requires a careful analysis with repetitions. The managers normally start with a trial capital structure and (4) evaluate shareholders’ wealth. They continue the same practice until they (2) identify a capital structure maximizing the firm value. At each trial, (1) the cost of debt and equity are projected in order to quantify the WACC. Then, (5) the forecasted free cash flows are capitalized at the calculated WACC to determine the firm value. As a final step, (3) debt is deducted from the value of the firm to measure the value of the equity and the stock price. In practice, we can utilize the earnings per share (EPS) analysis to determine the shareholders’ wealth:

The correct answer is E.