A firm$$s current balance sheet is as follows:

Assets $ $110$ Debt $ $44$

Equity $66$

What is the firm$$s weighted$-$average cost of capital at various combinations of debt and equity, given the following information? Round your answers to one decimal place.

Debt$/$Assets After$-$Tax Cost of Debt Cost of Equity Cost of Capital

$0\%6\%13\%\%$

$10613\%$

$20714\%$

$30815\%$

$40916\%$

$501116\%$

$601217\%$

Construct a pro forma balance sheet that indicates the firm$$s optimal capital structure. Choose the best structure from the options analyzed in part a$.$ Compare this balance sheet with the firm$$s current balance sheet. Round your answers to the nearest dollar.

Assets $ $110$ Debt $

Equity $

What course of action should the firm take? Round your answer to the nearest whole number.

Since the firm is currently using $\%$ debt financing, it at its optimal capital structure and

As a firm initially substitutes debt for equity financing, what happens to the cost of capital?

The cost of capital initially

If a firm uses too much debt financing, why does the cost of capital rise?

If a firm uses too much debt financing, the firm becomes financially leveraged and riskier. This causes the interest rate to and the cost of equity to $.$ These changes in the cost of debt and equity cause the cost of capital to $.$Problem $21-03$

A firm's current balance sheet is as follows:

Assets

$$110$

Debt

$$44$

Equity

$66$

a$.$ What is the firm's weighted$-$average cost of capital at various combinations of debt and equity, given the following information? Round your

answers to one decimal place.

b$.$ Construct a pro forma balance sheet that indicates the firm's optimal capital structure. Choose the best structure from the options analyzed

in part a$.$ Compare this balance sheet with the firm's current balance sheet. Round your answers to the nearest dollar.

Assets $$110$ Debt $

Equity $

What course of action should the firm take? Round your answer to the nearest whole number.

Since the firm is currently using

C

c$.$ As a firm initially substitutes debt for equity financing, what happens to the cost of capital?

The cost of capital initially

d$.$ If a firm uses too much debt financing, why does the cost of capital rise?

If a firm uses too much debt financing, the firm becomes

financially leveraged and riskier. This causes the interest rate to

and the cost of equity to

$.$ These changes in the cost of debt and equity cause the cost of capital to