All I Got, Inc. (NYSE: AIG) is considering changing its capital structure. AIG currently has no debt and no preferred stock, but it would like to add some debt to take advantage of low interest rates and the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Market Debt- Market Equity- Before-Tax Cost to-Value Ratio to-Value Ratio of Debt (ra) (wa) (ws) 0.0 1.0 6.0% 0.2 0.8 7.0% 0.4 0.6 8.0% 0.6 0.4 9.0% 0.8 0.2 10.0% AIG uses the CAPM to estimate its cost of common equity.rs, and at the time of the analysis the risk-free rate is 5%, the market risk premium is 6%, and the company's tax rate is 40%. AIG estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.8. Question 14 (2.5 points) What is the WACC for the capital structure of 80% debt and 20% equity? 9.06% 9.88% 10.42% 11.82% 12.23% Question 15 (2.5 points) What is the firm's optimal capital structure? Debt = 0%; Equity = 100% Debt = 20%: Equity - 80% Debt - 40%: Equity - 60% Debt - 60% Equity 40% Debt - 80%. Equity = 20%