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.)