Seduak has estimated the costs of debt and equity capital for various proportions of debt in its capital structure:
Based on these estimates, determine Seduak's optimal capital structure.

Question

Seduak has estimated the costs of debt and equity capital for various proportions of debt in its capital structure: 
Based on these estimates, determine Seduak's optimal capital structure.

Quizplus · Accepted Answer

Solution: k₁₀ = 0.10(0.054) + 0.90(0.133) = 0.1251 k₂₀ = 0.20(0.054) + 0.80(0.138) = 0.1212 k₃₀ = 0.30(0.058) + 0.70(0.144) = 0.1182 k₄₀= 0.40(0.063) + 0.60(0.152) = 0.1164 k₅₀ = 0.50(0.07) + 0.50(0.16) = 0.115 k₆₀ = 0.60(0.082) + 0.40(0.17) = 0.1172

Seduak Has Estimated the Costs of Debt and Equity Capital