a. Given the following, determine the firm's optimal capital structure: Debt/Assets 0% 10 20 30 40 50 60 Round your answers for capital structure to the nearest whole number and for the cost of capital to one decimal place. After-Tax Cost of Debt 6% 7 7 7 9 10 13 10 The optimal capital structure: % debt and % equity with a cost of capital of b. If the firm were using 40 percent debt and 60 percent equity, what would that tell you about the firm's use of financial leverage? Round your answer for the cost of capital to one decimal place. If the firm uses 40% debt financing, it would be using too much % 90 Cost of Equity 11% 11 12 13 13 13 14 10.7 financial leverage. At that combination the cost of capital is than their required 11.0%. % cost of capital by substituting equity for debt c. What two reasons explain why debt is cheaper than equity? Debt is cheaper than equity because interest expense is tax-deductible In addition, equity investors bear higher risk. d. If the firm were using 10 percent debt and 90 percent equity and earned a return of 9.7 percent on an investment, would this mean that stockholders would receive less than their required return of 11.0 percent? If the firm earns 9.7% on an investment, the stockholders will earn less What return would stockholders receive? Round your answer to one decimal place. %. The firm could lower the

a. Given the following, determine the firm's optimal ranital atnurtiser Round vour ansen for captal structure to the nearest whole number and for the cont of capital to one decimal place. The optimal capital structure: $ debt and 4 enuity with a cost of capital of \% If the firm were using 40 percent debt and 60 percent equity, what nould thet tell vou about the firm k vie of financial leverape? Round your answer for the cost of capital to one decimal place. If the firm vies sost debt financing, it would be using financial leverage. A that combination the cost of capital is Q W. The firm could lower the cost of castal by substituting What two reasons explain why debt is cheaper than equay? Debt is cheaper than equity because interest expense In addition, equity investors bear risk. If the firm were using 10 percent debt and 90 percent equity and earned a return of 9.7 percent on an investrent, wowld this mean that stockholders would receive iess than their required return of 11.0 percent? If the firm earns 9.79 on an investment, the stockholders will earn than their required 11.0%. What return would stockholders receive? Round your answer to one decimal plate. 3