Explain the concept of the optimal capital structure and how it can be determined.

Explain the cost of capital and how it is determined.

• Explain the concept of the optimal capital structure and how it can be determined.
• Explain the concept of financial leverage and analyze how it can affect capital structure decisions.
• Provide an example of a highly leveraged firm and estimate the leverage’s effect when the firm is doing well, and when there is a downturn in sales.