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Problem 21-04 The financial manager of a firm determines the following schedules of cost of debt and cost of equity for various combinations of debt

Problem 21-04

The financial manager of a firm determines the following schedules of cost of debt and cost of equity for various combinations of debt financing:

Debt/Assets After-Tax Cost of Debt Cost of Equity
0 % 4 % 9 %
10 4 9
20 4 9
30 6 10
40 6 10
50 7 12
60 9 14
70 11 15

Find the optimal capital structure (that is, optimal combination of debt and equity financing). Round your answers for the capital structure to the nearest whole number and for the cost of capital to one decimal place.

The optimal capital structure: % debt and % equity with a cost of capital of %

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