TRANSNATIONAL’s CFO knew that having ascertained the most interest the company should be willing to pay (as in Problem 7), she was well on her way to estimating the optimum combination of debt and equity. Conferring with the company’s investment bankers, she was able to put together the following table indicating the likely rates of interest that the company would have to pay for the levels of borrowing shown in the table.

Using this information together with your answer to Problem 7, obtain an estimate of the optimum borrowing for the company.

Data From Problem 7:-

After revising some of the data used previously, TRANSNATIONAL’s CFO compiled the following table.

Calculate the highest level of interest that the company should be willing to pay for each level of borrowing in the table.

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Borrowing Expected borrowing rate 50 0.07 100 0.07 150 0.09 200 0.09 250 0.11