7. Capital structure theory Corporations stockholders as an expense. The differential tax treatment of capital structure. Debt financing is allowed to deduct interest payments as an exprme?Corporations allowed to deduct drvidend payments to interest payments and dividend payments encourages frieis to use in their expensive than comman or preferred stock finencing Green Goose Automation Company currently has no debt in ias capital structure, but t is consdering using some debt and equity. The frm's unievered beta is 1.2, and its cost of equity is 11.40%. Because the firm has ino debt in its capital structure, its weighted a cost of capital (waCC) also equals 11.40%. The risk-free rate of interest (re) is 3%, and the market risk premium (RP) 7%. Green Gooses marginal tax rate is 30%. reduaing iRs outs Green Goose is examiming how dfferent levels of debt will affect ats costs of debt and equity, as well as its WACC The tirm has collected the financial information that follows to aalyze its weighted average cost of cepital (WACC). Complete the following tapile D/A E/A Ratio lRatio D/E RatioRating Cost of Beta (b) Equity (rs) WACC Bond Cost of Debt Levered 0.00 11,40% 12.87% 11.40% 11.47% 0.20.R 0.4 0.6 0.6 0.4 0.67 1 50 8 4 8.9% 1.76 15.32% [ ? 2.46||| :v | 12.75% B5