● 4. While considering the most desirable Capital Structure of a company, the following estimates of the cost of debt and Equity Capital (after tax) have been made at various levels of the debt–equity mix:

Debt as Percentage of Total Capital Employed Cost of Debt (%) Cost of Equity (%)

0 — 15 10 7 15 20 7 16 30 8 17 40 9 18 50 10 21 60 11 24 What is composite Cost of Capital at different levels of debt-financing? Can you suggest an optimal debt–equity mix in the above case?