Final answer:
The optimal capital structure is reached when the amount spent and the firm's income are balanced at the intersection of the aggregate expenditure function and the 45-degree line, taking account of the interest rate and the expected return on investments.
Step-by-step explanation:
The optimal capital structure has been achieved when the amount spent are in balance, specifically at the intersection of the aggregate expenditure function and the 45-degree line. This intersection suggests that all of the income that a firm earns is being used to fund its operations, including investments, paying back debts, and paying dividends to shareholders, without any excess or shortfall.
An example of how this works in practice can be illustrated with an investment scenario. If the interest rate is 9%, which represents the cost of financial capital, and the firm can capture a 5% return to society, it will adjust its calculations as if the effective rate of return is 4%. Consequently, the firm would choose to invest $183 million, seeing this as the optimal level of investment given the costs and expected returns.
In essence, it's crucial to recognize what's on the supply and demand side of the financial capital market and how savings and investment decisions are interconnected. The national saving and investment identity should always hold true, reinforcing that the decisions made by firms regarding their capital structure must be balanced and thoroughly calculated to achieve optimal results.