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Silicon Valley Microchips Inc. has estimated the costs of debt and equity capital (with
bankruptcy and agency costs) for various propositions of debt in its capital structure as follows:
B=Debt, E=Equity) The firm's marginal (and average) income tax rate is 40%. Determine the
company's optimal capital structure.

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Silicon Valley Microchips Inc. has estimated the costs of debt and eq.pdf

  • 1. Silicon Valley Microchips Inc. has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various propositions of debt in its capital structure as follows: B=Debt, E=Equity) The firm's marginal (and average) income tax rate is 40%. Determine the company's optimal capital structure.