Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information:

Debt/assets = .30, .40, .50, .60, .70

kd(Cost of Debt) .10, .105, .11, .117, .13

ke(Cost of Equity) .125, .13, .135, .142, .155

Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 40%.

a. 40% has lowest cost of capital

b. 50% has lowest cost of capital

c. 70% has lowest cost of capital

d. 60% has lowest cost of capital