5. The relationship between a firm's capital structure and other company attributes As a firm takes on more debt, its probability of bankruptcy Other factors held constant, a firm whose earnings are relatively volatile faces a chance of bankruptcy. Therefore, when other factors are held constant, a firm whose earnings are relatively volatile should use debt than a more stable firm. When bankruptcy costs become more important, they the tax benefits of debt. General Forge and Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 13.00%. The risk-free rate of interest (FRP) is 3%, and the market risk premium (RPM) is 8%. General Forge's marginal tax rate is 25% General Forge is examining how different levels of debt will affect its costs of debt and equity well as its WACC. The firm has collected the financial Information that follows to analyze its weighted average cost of capital (WACC). Complete the following table. D/Cap Ratio Cost of Equity E/Cap Ratio 1.0 Bond Rating Before-Tax Cost of Debt () D/E Ratio 0.00 Levered Beta (b) 1.25 0.0 WACC 13.00 13.1584 0.2 0.0 0.25 13.00% 14.872 18.000 8:49 0.4 0.6 0.67 BBB 1.025 0.0 0.4 1.50 2.656 14.694 1114 14.39 0.0 0.2 5.000 43.000% As a firm takes on more debt, its probability of bankruptcy Other factors held constant, a firm whose earnings are relatively volatile faces a chance of bankruptcy. Therefore, wher rs are held constant, a firm whose earnings are relatively volatile should use decreases debt than a more stable firm. When bankruptcy cost re important, they the tax benefits of debt. increases General Forge and Foundry Corporation currently has no debemos optal structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 13.00%. The risk-free rate of interest (rup) is 3%, and the market risk premium (RPM) is 8%. General Forge's marginal tax rate is 25%. General Forge is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial information that follows to analyze its weighted average cost of capital (WACC). Complete the following table. D/Cap Ratio E/Cap Ratio Bond Rating Before-Tax Cost of Debt (ra) Levered Beta (b) 1.25 Cost of Equity 1.) D/E Ratio 0.00 WACC 0.0 10 13.009 0.2 0.8 0.25 A 13.00% 14.87296 18.000 13.156% 0.4 0.6 0.67 BBB 8.99 11.196 1.50 0.6 0.0 14.594 1.875 2.656 5.000 0.4 0.2 14.346 43.000% As a firm takes on more debt, its probability of bankruptcy Other factors held constant, a firm whose earnings are relatively volatile faces a chance of bankruptcy. Therefore, when other factors are held constant, a firm whose earnings are relatively volatile should use more stable firm. When bankruptcy costs become more important, they the tax benefits of debt. greater General tower Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding one. The firm's unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 13.00%. The risk free rate of interest (r) is 3%, and the market risk premium (RPM) is 8%. General Forge's marginal tax rate is 25%. General Forge is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial Information that follows to analyze its weighted average cost of capital (WACC). Complete the following table. D/Cap Ratio E/Cap Ratio 1.0 Bond Rating Before-Tax Cost of Debt (ra) D/E Ratio 0.00 Levered Beta (b) 1.25 Cost of Equity T.) 13.00% WACC 13.00% 0.0 0.2 0.8 3.490 14.872 13.1589 0.25 0.67 0.4 0.6 BBB 1.875 18.00095 0.6 0.14 1.50 BB 8.9% 11.1% 14.3% 14.6949 2.656 5.000 0.8 0.2 43.000 General Forge and Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 19.00%. The risk-free rate of interest (ro) is 3%, and the market risk premium (RPM) is 8%. General Forge's marginal tax rate is 25%. General Forge is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial Information that follows to analyze its weighted average cost of capital (WACC). Complete the following table, 3.800 Levered Beta D/Cap Ratio 0.0 E/Cap Ratio 1.0 Bond Rating Cost of Equity Before Tax Cost of Debt (ra) 4.00 1.25 13.00% WACC 12.00% 13.1584 0.2 0.1 A 2.400 8.45 0.4 0.6 14.872 18.000% BBB 1.075 4.200 8.9% 11.15 0.6 BB 2.650 14.694 0.8 0.2 14.3% 5.000 43.000 al Forge is examining how different levels of debt will affect its costs of debt and equity as well as its WACC. The firm has collected the financial mation that follows to analyze its weighted average cost of capital (WACC). Complete the 1.707 bo table. 1.410 ap lo E/Cap Ratio Bond Rating Before-Tax Cost of Debt (ra) 1.632 Beta D/E Ratio Cost of Equity WACC 1.0 0.00 1.484 13.00% 0.8 13.00% 14.872% 0.25 A 8.4% 8.9% 13.158% 0.6 0.67 BBB 1.875 18.0009 0.4 1.50 BB 11.1% 2.656 14.0949 0.2 c 14.396 5.000 43.000% Grade It Now Save & Continue General Forge and Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 13.00%. The risk-free rate of interest (ru) is 3%, and the market risk premium (RPM) is 8%. General Forge's marginal tax rate is 25%. General Forge is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial information that follows to analyze its weighted average cost of capital (WACC). Complete the following table. 27.885% D/Cap Ratio 0.0 E/Cap Ratio Bond Rating Before-Tax Cost of Debt (ra) fity ( Levered Beta (b) 1.25 D/E Ratio 0.00 25.460% WACC 13.00% 1.0 29.098% 0.2 0.8 0.25 A 13.158% 8.4% 8.99 24.2489 0.4 0.6 0.67 BBB 1.875 0.6 0.4 1.50 BB 14.6949 2.656 5.000 0.8 0.2 14.39 43.00096 General Forge and Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 13.00%. The risk-free rate of interest (rup) is 3%, and the market risk premium (RPM) is 8%. General Forge's marginal tax rate is 25%. General Forge is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial Information that follows to analyze its weighted average cost of capital (WACC). Complete the following table. 14.8179 16.164% D/Cap Ratio 0.0 E/Cap Ratio Bond Rating Before Tax Cost of Debt (ra) Levered Beta (b) 1.25 Cost of Equity 1.) 13.00 D/E Ratio 0.00 0.25 16.838% 1.0 13.47098 0.2 0.8 A 8.49 14.8729 0.67 BBB 8.9% 1.875 18.000% 0.4 0.6 0.6 0.4 1.50 BB 2.656 14.6949 11.1% 14.3% 0.8 0.2 5.000 43.0009 General Forge and Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.25, and its cost of equity is 13.00%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 19.00%. The risk-free rate of interest Cup) is 3%, and the market risk premium (RPM) is 8% General Forge's marginal tax rate is 25% General Forpe is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial information that follows to analyze its weighted average cost of capital (WACC). Complete the following table. Levered Beta D/Cap Ratio 0.0 E/Cap Ratio Bond Rating Before Tax Cost of Debt (ra) 18.0399 D/E Ratio 0.00 Cost of Equity ) 13.00% 1.0 1.25 18.8989 0.2 0.8 0.25 A 8.49 V 15.4629 14.872 18.000 0.4 0.6 0.67 BBB 1.875 17.1804 0.6 0.4 1.50 BB 3.99 11.15 14.39 2.656 5.000 0.8 0.2 C 43.000