Medallion Cooling Systems Has total assets of $12,000,000,EBITof $2,100,000,and preferred dividends of $204,500and is taxed at a rate of 40%. In an effort to determine the optimal capital structure,the firm has assembled data on the cost of debt,the number of shares of common stock for various levels of indebtedness,and the overall required return on investment:

Capital Structure debt ratio Cost of Debt Number of Common Stoc Required Return

0% 0 197000 12.8%

15% 8.4 164000 13.4

30 9.0 134000 14.4

45 11.6 113000 16.2

60 15.4 86000 20.5