Optimal Capital Structure XYZ Ltd is contemplating increasing its debt proportion to manage its working capital. Currently, its debt proportion is 40% of the capital. An analyst has calculated the effect of an increase in debt on the cost of equity and WACC. The analyst has also accounted for financial distress costs pertaining to the increased risk. Proportion of Debt Debt-to-Equity Cost of Equity Effective Cost of Debt Cost of Financial Distress WACC 0% 0 10% 3.5% 10.0% 10% 0.11 11% 3.5% 10.25% 20% 0.25 12% 3.5% 10.3% 30% 0.43 13% 3.5% 10.2% 40% 0.67 14% 3.5% 9.8% 50% 1.00 15% 3.5% 9.3% 60% 1.50 16% 3.5% 8.5% 70% 2.30 17% 3.7% 1% 8.7% 80% 4.00 18% 4.1% 3% 9.9% 90% 9.00 19% 5.0% 9% 15.4% 100% 6.0% 14% 20.0% Note: Financial distress is a condition where the company is not able to generate sufficient revenue to meet its financial obligations like debt. Due to financial distress, the company's cost of capital increases. Sometimes, it has to sell assets quickly even at a low cost to meet obligations. How much debt proportion increase is advisable for the company? Assume that the company's only priority is to maximise its value