What is capital structure that has lowest cost of capital

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Question - The management of the company "Coro Coro" that supplies copper components for cell phones that are manufactured globally is considering establishing a subsidiary that will require an investment in assets of 3 billion dollars. Gustavo Suarez, the CFO of the company, wishes to select the capital structure that allows him to minimize the cost of capital for the subsidiary, for which he performs a scenario analysis to evaluate the cost of capital considering the data in the following table:

Percentage of Debt

Cost of Equity

Cost of Debt

0%

13.5%

0%

50%

18%

12%

80%

28%

18%

Required - If the income tax rate is 35%, what is the capital structure that has the lowest cost of capital?

Reference no: EM133017668

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