Determine what is the firms optimal capital structure

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Reference no: EM13335456

Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures:

Percent debt     After-tax Cost of Debt              Cost of equity
0%                     ___                                           16%
20                    6.6%                                          17.0
40                   7.8                                              19.0
60                  10.2                                             22.0
80                  14.0                                              27.0

What is the firm's optimal capital structure? (Hint: Calculate its corporate cost of capital at each structure. Also, note that data on component costs at alternative capital structures are not reliable in real-world situations.)

Reference no: EM13335456

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