QUESTION 1 Company XYZ wants to determine the optimal capital structure. Below is a table prepared for by the financial manager of the company. B/S Ki Ke Ko B/(B+S) S/(B+S) levered beta 0.00 3.00% 14.00% 14.00% 0 1 1.50 0.11 3.00% 15.00% 13.80% 0.1 0.9 1.63 0.25 4.00% 16.25% 13.80% 0.2 0.8 1.78 0.43 4.00% 17.86% 13.70 0.3 0.7 1.98 0.67 4.00% (A) (B) 0.4 0.6 (C) 1.00 4.50% 23.00% 13.75% 0.5 0.5 2.63 1.50 4.75% 27.50% 13.85% 0.6 0.4 3.19 2.33 5.00% 35.00% 14.00% 0.7 0.3 4.13 4.00 6.00% 50.00% 14.80% 0.8 0.2 6.00 9.00 7.00% 95.00% 15.80% 0.9 0.1 11.63 Where Ki=after-tax cost of debt, Ke=cost of equity, Ko = cost of asset or WACC, B is the market value of debt, and S is the market value of equity. The expected return on the market portfolio is 10%, the risk free rate is 2%, tax rate is 25%. Assume CAPM is the right model to calculate the required rate of return on its common stock. Fill in the blank for (A). Note: Please write your answer in decimal form up to 1 decimal places. Fill in the blank for (B). Note: Please write your answer in decimal form up to 3 decimal places. Fill in the blank for (C). Note: Please write your answer in decimal form up to 2 decimal places. What is the optimal debt-to-equity ratio? Note: Please write your answer in decimal form up to 2 decimal places.