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.

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.

Quizplus · Accepted Answer

Solution: 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