Assume that you have just been hired as business manager STS$.$ The Cost of Debt of STS

with Different Capital Structures is shown in the table below

Percent Financed with Debt $($wd$)$ Cost of Debt $($rd$)$

$0\%8\mathrm{.}0\%$

$108\mathrm{.}0$

$208\mathrm{.}1$

$308\mathrm{.}5$

$409\mathrm{.}0$

$5011\mathrm{.}0$

$6014\mathrm{.}0$

The risk$-$free rate of return, rRF$,$ is $6\%,$ and the market risk premium, MRP$,$ is $6\%.$ Calculate

the optimum capital Structure of STS$.$ If we assume that the unlevered Beta of STS $=1,$

calculate the cost of capital corresponding to recapitalization with the different debt

levels above.

STS has an expected EBIT of $$40,000.$ STS is a zero$-$growth company. It pays all its income

in dividends. With a tax rate of $40\%,$ estimate the firm$$s value for each debt level. Also

find the stock price for each debt level and EPS at each level. The firm has $10,000$

outstanding stocks.