Problem 20-03 Fill in the table using the following information. Assets required for operation: $9,200 Firm A uses only equity financing Firm B uses 40% debt with a 6% interest rate and 60% equity Firm C uses 50% debt with a 10% interest rate and 50% equity Firm D uses 50% preferred stock financing with a dividend rate of 10% and 50% equity financing Earnings before interest and taxes: $920 If your answer is zero, enter "0". Round your answers for monetary values to the nearest cent. Round your answers for percentage values to one decimal place. A B C D $ $ $ $ $ S S $ $ S $ $ $920.00 $920.00 $920.00 $920.00 $ $ $ Debt Preferred stock Common stock Earnings before interest and taxes Interest expense Earnings before taxes Taxes (40% of earnings) Preferred stock dividends Income available to common stockholders Return on common stock $ $ $ $ $ S $ $ $ S $ $ $ $ $ $ $ % % % % What happens to the common stockholders' return on equity as the amount of debt increases? Why is the rate of interest greater in case C? Why is the return lower when the firm uses preferred stock instead of debt? Other things equal, the return on common stock - Select as the firm uses financial leverage. As the firm becomes - Select- v financially leveraged -Select- v in financial risk), the rate of interest will increase. The return is lower when the firm uses preferred stock instead of debt because the -Select- are not tax deductible as opposed to the -Select- Which type of financing involves less risk for the firm? Assuming a comparable use, -Select- is less risky to the firm. return on common stock: increases / decreases As the firm becomes: less / more financially leveraged: increase / decrease instead of debt because the preferred stock dividends / interest payments are not tax deductible as opposed to the preferred stock dividends / interest payments Assuming a comparable use: preferred stock financing / debt financing