Determining firm cost of capital

Reference no: EM1370317

Given the following schedules:

Debt/Assets Cost of Debt Cost of Equity Cost of Capital

0% 7% 14%

10 7 14
20 7 14
30 8 14
40 8 16
50 10 18
60 10 20

a. What is firm's cost of capital at the various combinations of debt and equity?

b. What is the firm's optimal capital structure? Construct a balance sheet showing that combination of debt and equity financing.

Reference no: EM1370317

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