1. What is the optimal capital structure based on the following information? Answer: (Please fill in...

     

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1. What is the optimal capital structure based on the following information? Answer: (Please fill in chart and pick the best) Weighted % Debt Cost Debt % Equity Cost Equity Average Cost of Capital 50% 5% 12% 60% 4.9% 9% 70% 4.5% 8.5% 80% 4.4% 8.3% A. When a company adds more debt to its capital structure why does this increase the risk of the firm? B. Why does the use of operating leverage increase the potential return to stockholders? 1. What is the optimal capital structure based on the following information? Answer: (Please fill in chart and pick the best) Weighted % Debt Cost Debt % Equity Cost Equity Average Cost of Capital 50% 5% 12% 60% 4.9% 9% 70% 4.5% 8.5% 80% 4.4% 8.3% A. When a company adds more debt to its capital structure why does this increase the risk of the firm? B. Why does the use of operating leverage increase the potential return to stockholders?