Attempts Keep the Highest:9 7. Capital structure theory Corporations stockholders as an expense. The differential tax treatment of interest payments and dividend payments encourages firms to use capital structure. Debt finanong is allowed to deduct interest payments as an expense. Corporations allowed to deduct dividend payments to in ther expensive than common or preferred stock firnancing Green Goose Automation Company currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The frm's unlevered beta is 12, and its cost or equity is 1 40%. Because the firm has no debt in its capital structure, its weighted average cost of capita (WACC) also equals 1.40%. The risk-free rate of interest (re) is 3%, and the market rak premium (RP) is 7%, Green Goose's marginal tax rate is 30%. Green Goose is examining how difflerent levels of debt waill affect its costs of debt and equity, as well as its WACC The firm has collected the finanoal information that follows to anslyze its weighted average oost of capital (WACC) Complete the following table Before-Tax D/AE/A BondCost of Debt Levered Cost of re) Beta (b) Equity ( 1.2 Ratio Ratio D/E Ratio Rating ) WACC o.0 .0 0.2 0.8 04 0.6 0.5, BBB 8.9% 1.76 15.32% ? w 0.00 11.40% ??.. w ] 8406 12.87% 11.47% 06 0 1.50 12.75%