Given the following, determine the firm$$s optimal capital structure:

Debt$/$Assets After$-$Tax Cost of Debt Cost of Equity

$0\%6\%11\%$

$10711$

$20712$

$30713$

$40913$

$501013$

$601314$

Round your answers for capital structure to the nearest whole number and for the cost of capital to one decimal place.

The optimal capital structure:

$\%$ debt and

$\%$ equity with a cost of capital of

$\%$

If the firm were using $60$ percent debt and $40$ percent equity, what would that tell you about the firm$$s use of financial leverage? Round your answer for the cost of capital to one decimal place.

If the firm uses $60\%$ debt financing, it would be using

$-$Select$-$

financial leverage. At that combination the cost of capital is

$\%.$ The firm could lower the cost of capital by substituting

$-$Select$-$

$.$

What two reasons explain why debt is cheaper than equity?

Debt is cheaper than equity because interest expense

$-$Select$-$

$.$ In addition, equity investors bear

$-$Select$-$

risk.

If the firm were using $10$ percent debt and $90$ percent equity and earned a return of $9\mathrm{.}7$ percent on an investment, would this mean that stockholders would receive less than their required return of $11\mathrm{.}0$ percent?

If the firm earns $9\mathrm{.}7\%$ on an investment, the stockholders will earn

$-$Select$-$

than their required $11\mathrm{.}0\%.$

What return would stockholders receive? Round your answer to one decimal place.

$\%$