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

Assets $ $120$ Debt $ $48$

Equity $ $72$

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

$0\%6\%12\%$

$\%$

$10612$

$\%$

$20614$

$\%$

$30715$

$\%$

$40816$

$\%$

$501016$

$\%$

$601117$

$\%$

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 $ $120$ 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

$-$Select$-$

at its optimal capital structure and

$-$Select$-$

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

The cost of capital initially

$-$Select$-$

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

$-$Select$-$

financially leveraged and riskier. This causes the interest rate to

$-$Select$-$

and the cost of equity to

$-$Select$-$

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

$-$Select$-$