Determine the firms optimal capital structure

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A firm has established the following cost of debt and equity capital (withbankruptcy and agency costs) for various proportions of debit in its capital structures:

Proportions of Debt             Cost of Debt              Cost od Equity

0.00                                              ------                               10.0%

0.10                                            4.0%                                10.1

0.20                                            4.2                                    10.3

0.30                                            4.4                                    10.8

0.40                                            4.8                                    11.4

0.50                                            5.5                                    12.5

0.60                                            6.6                                    14.5

0.07                                            8.0                                    18.0

 

Determine the firm's optimal capital structure, and what is the formula to find this out.

Reference no: EM13333035

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