Previous Page Next Page Page 1 of 39 (The following information applies to the ne blems.) Sail, Inc. is trying to determine its optimal capital structure. The chief financial officer has obtained estimates of the before tax cost of debt (ra) from the firm's investment banker. She has estimated the common stock beta for each level of debt and has partially completed the worksheet below. The firm's marginal tax rate is 40%, the market return (M) is 10%, and the risk-free rate of return (RF) is 6%. Capital Structure Cost of Debt Beta Cost of Equity Cost of Capital (before tax) DIA (ra) (b) (3) (WACC) 0 7.0% 1.50 12.00% 12.00% 0.20 8.0% 12.92% 11.30% 0.30 9.0% 1.89 13.54% 0.40 10.0% 2.10 11.04% 0.50 11.0% 2.40 15.60% 0.60 12.0% 2.85 17.40% 11.28% Question 1 (1 point) Saved If the firm's debt level (D/A) is 40%, what is the firm's cost of equity? A) 11.50% B) 12.92% MacBook Air