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 Alter-Tax Cost of Debt Cost of Equity 50 a. Find the optimal capital structure that is, optimal combination of debt and equity finanong). Round your answers for the capital structure to the nearest whole number and for the cost of capital to one decimal places 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 equity financing? The cost of capital initially dedines because the firm cost of debt is Select than the cost of equity. Why will the cost of funds eventually rise as the firm becomes more financially leveraged? As the firm becomes more financially leveraged and riskier, the cost of debt and equity will select 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 select which makes the cost of the debt financing Select 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 the cost of capital