After speaking with a local investment banker, you obtain the following estimates of the cost of debt at different debt levels (in thousands of dollars): Bond Rating rd Amount Borrowed $0 $250,000 $500,000 $750,000 $1,000,000 D / Capital Ratio 0.0000 0.1250 0.2500 0.3750 0.5000 DIE Ratio 0.0000 0.1429 0.3333 0.6000 1.0000 AA A BBB BB 8.0% 9.0% 11.5% 14.0% Now consider the optimal capital structure for GS 1). Define the terms optimal capital structure and target capital structure 2) Why does GS's bond rating and cost of debt depend on the amount of money borrowed? (3) Assume that shares could be repurchased at the current market price of $25 per share. Calculate GS's expected EPS and TIE at debt levels of $0, $250,000, $500,000, $750,000, and $1,000,000. How many shares would remain after recapitalization under each scenario? (4) Using the Hamada equation below, what is the cost of equity if GS recapitalizes with $250,000 of debt? $500,000? $750,000? $1,000,000? After speaking with a local investment banker, you obtain the following estimates of the cost of debt at different debt levels (in thousands of dollars): Bond Rating rd Amount Borrowed $0 $250,000 $500,000 $750,000 $1,000,000 D / Capital Ratio 0.0000 0.1250 0.2500 0.3750 0.5000 DIE Ratio 0.0000 0.1429 0.3333 0.6000 1.0000 AA A BBB BB 8.0% 9.0% 11.5% 14.0% Now consider the optimal capital structure for GS 1). Define the terms optimal capital structure and target capital structure 2) Why does GS's bond rating and cost of debt depend on the amount of money borrowed? (3) Assume that shares could be repurchased at the current market price of $25 per share. Calculate GS's expected EPS and TIE at debt levels of $0, $250,000, $500,000, $750,000, and $1,000,000. How many shares would remain after recapitalization under each scenario? (4) Using the Hamada equation below, what is the cost of equity if GS recapitalizes with $250,000 of debt? $500,000? $750,000? $1,000,000