16.22

Two theories of capital structure: Use the information in the following table to make a sug- gestation concerning the proportion of debt that the firm should utilize in its capital structure.

Benefit or (Cost) No Debt 25% Debt 50% Debt 75% Debt

Tax shield $0 $10 $20 $30 Agency cost 2$10 2$ 5 2$ 5 2$20 Financial distress cost 2$ 1 2$ 3 2$10 2$10