XYZ company is trying to determine its optimal capital structure. The companys capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table:

The risk-free rate is 5 percent and the return on a market portfolio is 11 percent. A researcher have estimated that if XYZ had no debt its beta would be 1.0, when there is debt the beta will increase by debt-equity ratio. Tax rate is 40%. On the basis of this information what is XYZ capital structure? Show all your work.

So Activity 5 [Read-Only] - Word File Home Insert Design Layout References Mailings Review View Tell me what you want to do... Times New Ro - 12 - Aa- EET ALT & Cut Be Copy Format Painter Clipboard cD bc. 1 Normal 1 No Spac... Heading 1 Heading 2 Title Subtitle Subtle Em... Emphasis Share Find - abc Replace Select - Paste B I Uabe x, x A - aly - A e- Font Paragraph Styles Editing 2. XYZ .company is trying to determine its optimal capital structure. The company's capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: Debt to total assets ratio Equity-to- total assets ratio 0.80 Before tax cost of debt 7.2% 0.20 0.40 0.50 0.50 The risk-free rate is 5 percent and the return on a market portfolio is 11 percent. A researcher have estimated that if XYZ had no debt its beta would be 1.0, when there is debt the beta will increase by debt-equity ratio. Tax rate is 40%. On the basis of this information what is XYZ capital structure? Show all your work. [5] Page 1 of 2 546 words LE English (United States) e w P + 100% ENG 05:26 PM INTL 2020-06-22