3.4 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 structures are not reliable in real-world situations.)

Question

3.4 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 structures are not reliable in real-world situations.)