● Z Ltd. provides you the following information:

Total Capital Employed = `10,00,000, Expected Annual Net Operating Income (EBIT) = `1,00,000.

Applicable cost of debt (Kd) and cost of equity (Ke) at alternative levels are given as follows:

Debt Capital Equity Capital Level (`) Cost of Debt (kd) Level (`) Cost of Equity (ke)

Up to `4,00,000

`4,00,001–5,00,000

`5,00,001–6,00,000 Above `6,00,000 10%

9%

8%

7%

Up to `3,00,000

`3,00,001–5,00,000

`5,00,001–10,00,000 20%

14%

13%

Calculate value of the firm and overall Cost of Capital if the proportion of Debt Capital to total capital is (i) 40%, (ii) 50%, (iii) 60% and (iv) 70%. Also comment on the optimal Capital Structure.