A company wants to know what its optimal capital structure is.

This company currently has the following information:

The Capital Asset Pricing is 17.6625%

It has a solvency ratio (D/A) of 0.6

The risk-free rate is 4.25%

The market return rate is 13.50%

A market risk premium of 9.25%

Generates an EBIT of $85,000

It has 250,000 shares outstanding.

Its operations have a financing cost of 11.28895%

Your tax rate is 30%

The interest rate on the debt if it were not leveraged would be 5% initially and for every 10% of debt you add to your capital structure, the rate will increase by 15% more.

DETERMINE:

What is the optimal capital structure? Support your answer.

Graphically demonstrate why this is the optimal capital structure.

Calculate the price of the Share with the Gordon model.