Optimal capital structure-understand this?

So this is question 4 on ECO reading 24

[question removed by moderator]

so the answer is c. Now I can understand how this can be the answer, but is there a equation that can help me understand the fundamental idea about optimal range of D/E ratio better, or we can just saay with static trade off theory the capital cost is higher then it is definitely not optimal? I am having trouble comprending the whole financial diastress cost thing i guess

The WACC as a function of D/E is a U-shaped curve. It goes down up to a point, then starts climbing again. If you increase debt and the WACC goes up, then you are past the optimal point.

Also, when you increase debt, then cost of equity goes up, and the best explanation is that you have gone beyond the optimal capital structure