Please explain and show how to calculate as question above.

Week 6 Discussion: Capital Structure Assume you havejust been hired as a manager of CoffeePlace, a coffee shop located nearAsoke junction. The company's earnings before interest and taxes (EBIT) was 100,000 baht last year, and it is expected to remain constant (in real terms) over time. CoffeePlace plans to pay out all prots as dividends. The management group owns about 50 percent of the stock. The rm is currently all-equity nanced; it has 20,000 shares outstanding; and current price is 5 baht per share. When you took your MBA corporate nance course, your instructor explained that most rms' owners could be better off nancially if the rms used some debt. When you suggested this to your new boss, he encouraged you to follow up with the idea. As a rst step, you consulted with the rm's investment banker and obtained the following estimated costs of debt for the rm at different capital structures: Percent Financed with Debt Costs of Debt 0% 0 20 7.0% 30 7,5 40 9,0 50 11,0 If the company were to recapitalize, debt would be issued, and the funds received would be used to repurchase stock. CoffeePlace is in the 20 percent corporate tax bracket, its beta is 1.0, the risk-free rate is 3 percent, and the market risk premium is 5 percent. Consider capital structure effects (by identifying the ways in which capital structure can affect the weighted average cost of capital and free cash flows). Then discuss whether you agree with the following hypotheses and why: 1. Does the company's debt policy create value to the rm? 2. Does the company's debt policy create competitive advantage? 3. Does the company's debt policy sustain senior management's visions