7. Determining the optimal capital structure Aa Aa Understanding the optimal capital structure Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis Debt Ratio Equity Ratio rd 30% 40% 50% 60% 70% 70% 60% 50% 40% 30% 6.02% 6.75% 7.15% 7.55% 8.24% 9.40% 9.750% 10.60% 11.30% 12.80% WACC 9.71% 9.55% 10.02% 10.78% 11.45% Which capital structure shown in the preceding table is Universal Exports Inc.'s optimal capital structure? Debt ratio = 50%; equity ratio = 50% Debt ratio = 30%; equity ratio = 70% Debt ratio = 40%; equity ratio = 60% Debt ratio 70%; equity ratio = 30% Debt ratio = 60%; equity ratio = 40% Consider this case: Globo-Chem Co. currently has a capital structure consisting of 40% debt and 60% equity. However, Globo-Chem Co.'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 2.5%, the market risk premium is 7%, and Globo-Chem Co.'s beta is 1.10 If the firm's tax rate is 40%, what will be the beta of an all-equity firm if its operations were exactly the same? Now consider the case of another company