An investment banking firm has estimated the following after-tax cost of debt and cost of equity for Toronto's Finest Resorts.
$\begin{array}{ccc}
\text { Proportion of Debt} & \text { After-tax Cost of Debt }& \text { Cost of Equity }\
\hline 30 \% & 6.8 \% &13.8 \% \
40 \% & 7.7 \% & 14.1 \% \
50 \% & 8.9 \% & 14.6 \% \
\end{array}$

What is the cost of capital for Toronto's optimal capital structure given the above information?

Question

An investment banking firm has estimated the following after-tax cost of debt and cost of equity for Toronto's Finest Resorts. 
 $\begin{array}{ccc}
  \text {  Proportion of Debt} &  \text {  After-tax Cost of Debt }&  \text {  Cost of Equity }\
\hline  30 \%  & 6.8 \% &13.8 \% \
 40 \% &  7.7 \% &  14.1 \%  \
50 \%  &  8.9 \%  &  14.6 \%  \
\end{array}$

What is the cost of capital for Toronto's optimal capital structure given the above information?

Quizplus · Accepted Answer

The Answer is B

An Investment Banking Firm Has Estimated the Following After-Tax Cost