Problem 21-04 The financial manager of a fim determines the following schedules of cost of debt and cost of equity for various combinations of debt financing: Debt/Assets After Tax Cost of Debt Cost of Equity 0% 5% 9% 10 9 20 9 30 10 40 10 50 11 60 11 70 11 16 3. Find the optimal capital structure that is, optimal combination of debt and equity financing), Hound your answers for the 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 b. Why does the cost of capital initially decline as the firm substitutes debt for quity finanong? The cost of capital initially declines because the firm cost of debt is than the cost of wity Why will the cost of funds eventually rise as the firm becomes more financially leveraged? As the firm becomes more financially leveraged and riskler, the cost of debt and equity will and cause the cost of capital to Increase d. Why is debt financing more common than financing with preferred stock? Debt financing is more common than financing with preferred stock because of which makes the cost of the debt financing the cost of the preferred stock e. If interest were not a tax deductible expense, what effect would that have on the firm's cost of capital? If interest were not a tax deductible, the cost of debt would be Bet the cost of capital