Richmond Clinic has obtained the following estimates for its costs of debt and equity at various capital structures:
After-Tax
Percent Debt 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? Calculate its corporate cost of capital at eachstructure. Also, note that data on component costs at alternative capital structures are not reliable in real-world situations.