The cost of both depth equity and capital rise as a firm, Financial Management

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The cost of both depth equity and capital rise as a firm

The cost of both depth equity and capital rise as a firm increases its reliance on one or the other. Suppose that a for-profit company has identified the following costs for debt and equity:

Percent Debt After Tax Cost of Debt Cost of Equity

0 ---- 12%

25 5.5% 14%

50 7.5% 16%

75 8.5% 19%

What is the optimal capital structure for this firm?

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Financial Management: The cost of both depth equity and capital rise as a firm

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