Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information:
Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 40%.
A) 40% has lowest cost of capital
B) 50% has lowest cost of capital
C) 60% has lowest cost of capital
D) 70% has lowest cost of capital

Question

Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information: 
Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 40%.
A) 40% has lowest cost of capital 
B) 50% has lowest cost of capital 
C) 60% has lowest cost of capital 
D) 70% has lowest cost of capital

Quizplus · Accepted Answer

Solution:
 11ea10f6_a15b_5d34_b6b3_3b3578a0bc85_TB2040_00