and risk 19) Generally, when a firm borrows less, its rate of return a) decreases; increases b) decreases; decreases c) increases; increases d) increases; decreases 20) A firm has $300,000 in EBIT and a tax rate of 40 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 15 percent. The firm's target capital structure is 40 percent debt and 60 percent equity. Assuming this mix represents the optimum capital structure for the firm, the value of the firm is a) $1.8 million b) $2.7 million c) $1.6 million d) $16.4 million