Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital
structures:

After-Tax
Percent Cost of Cost of
debt Debt 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

Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital								
structures:								
								
	After-Tax							
Percent	Cost of	Cost of						
debt	Debt	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.