Problem: With reference to the measurement of portfolio risk, distinguish between Portfolio theory and the Capital Asset Pricing Model (CAPM).
The following details relating to Bidii Limited show how the level of gearing affects the company's cost of debt.
|
Gearing level (%):
|
10
|
20
|
30
|
40
|
50
|
60
|
70
|
|
Pre-tax cost of debt (%):
|
6.5
|
7.1
|
7.8
|
8.5
|
10
|
12
|
15
|
Required:
Determine the company's optimal capital structure. Be sure to support your response with specifics.