Feldspar Inc

Multiple Choice

Feldspar Inc. is considering the capital structure for a new division. Management has been given the following cost information:
Based on this information, what capital structure (debt/asset ratio) should management accept? Assume the marginal tax rate is 40%.

A) 40% has lowest cost of capital
B) 50% has lowest cost of capital
C) 60% has lowest cost of capital
D) 70% has lowest cost of capital