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What is the cost of capital at the optimal mix of debt and equity Exhibit A: Yield to maturity on debt: 8.0% Market value of
What is the cost of capital at the optimal mix of debt and equity
Exhibit A: Yield to maturity on debt: 8.0% Market value of debt: $100 million Number of shares of common stock: 10 million Market price per share of common stock: $30 Cost of capital if all equity-financed: 10.3% Marginal tax rate: 35%
Exhibit B:
Debt-to-Total Capital Ratio | Cost of Debt | Cost of Equity |
20% | 8.1% | 12.6% |
30% | 8.8% | 13.4% |
40% | 9.5% | 15.7% |
50% | 10.4% | 16.0% |
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