Biotec has estimated the costs of debt and equity capital for various proportions of debt in its capital structure:

Based on these estimates, determine Biotec's optimal capital structure.
A)35% debt
B)40% debt
C)45% debt
D)50% debt

Question

Biotec has estimated the costs of debt and equity capital for various proportions of debt in its capital structure:

Based on these estimates, determine Biotec's optimal capital structure.
A)35% debt 
B)40% debt 
C)45% debt 
D)50% debt

Quizplus · Accepted Answer

k₃₅ = 0.35(0.054) + 0.65(0.138) = 0.1086
k₄₀ = 0.40(0.056) + 0.60(0.140) = 0.1064
k₄₅ = 0.45(0.059) + 0.55(0.143) = 0.1052
k₅₀ = 0.50(0.064) + 0.50(0.147) = 0.1055

Biotec Has Estimated the Costs of Debt and Equity Capital