Question
Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures: Percent Debt After tax cost of debt
Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures:
Percent Debt | After tax cost of debt | Cost of equity |
0% | _______ | 16% |
20 | 6.6% | 17 |
40 | 7.8 | 19 |
60 | 10.2 | 22 |
80 | 14.0 | 27 |
What is the firm's optimal capital structure? (Hint: Calculate its corporate cost of capital at each structure. Also, note that data on component costs at alternative capital structures are not reliable in real-world situations. Can someone show me step by step how this problem is calculated. I have been using the formula: CCC=[Wdx R(Rd) x (1-T) + [Wex R(Re)] but I'm not sure that I am plugging the right numbers into the equation.
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