Topic: Capital Structure Question
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
|
|
40
|
7.8
|
19
|
|
60
|
10.2
|
22
|
|
80
|
14.0
|
27
|
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 structure are not reliable in real world situations.)