Corporations stockholders as an expense. The differential tax treatment of interest payments and dividend payments encourages firms to use capital structure. Debt financing is allowed to deduct interest payments as an expense. Corporations allowed to deduct dividend payments to in their expensive than common or preferred stock financing General Forge and Foundry Corporation currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.15, and its cost of equity is 12.78%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 12.78%. The risk-free rate of interest (TRF) is 3%, and the market risk premium (RP) is 8.5% General Forge's marginal tax rate is 40% General Forge is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial information that follows to analyze its weighted average cost of capital (WACC). Complete the following table D/A E/A Ratio Ratio D/E Ratio Bond Rating Before-Tax Cost of Debt (rd) Levered Beta (b) 1.15 Cost of Equity (rs) 12.78% 14.22% 16.69% WACC 12.78% 12.24% 0.0 0.2 0.4 0.6 0.8 0.8 0.6 0.4 0.2 0.00 0.25 0.67 1.50 7.2% 7.7% 8.9% 11.9% 1.61 2.19 3.91 11.85% 36.24%