Finally, you need to decide whether FVW$$s capital structure should be adjusted to improve its WACC.

The optimal capital structure provides the best trade$-$off between the tax benefits and financial distress

costs of debt. The table below expresses the financial distress costs of debt in terms of the impact of a

firm$$s debt$-$to$-$capital ratio $($the ratio of debt to the sum of debt and equity$)$ on its EBITDA.

Debt to Capital Ratio Drop in EBITDA

$0\%$ to $9\%0\%$

$10\%$ to $19\%0\%$

$20\%$ to $29\%5\%$

$30\%$ to $39\%5\%$

$40\%$ to $49\%10\%$

$50\%$ to $59\%10\%$

$60\%$ to $69\%20\%$

$70\%$ to $79\%30\%$

$80\%$ to $89\%40\%$

The worksheet Question $6$ provides a space for you to determine the structure for FVW that minimizes

its WACC. Explain how you calculated FVW$$s optimal capital structure in your report and compare the

WACC under the optimal capital structure with the WACC under the current capital structure. What is

FVW$$s current debt$-$to$-$capital ratio and what value for the debt$-$to$-$capital ratio minimises WACC? What

should FVW do to alter its capital structure?