Back to Assignment Attempts: Average: 12 11. The relationship between a firm's capital structure and other company attributes Corporations are allowed to deduct interest payments as an expense. Corporations are not allowed to deduct dividend payments to stockholders as an expense. The differential tax treatment of interest payments and dividend payments encourages firms to use debt in their capital structure. Debt financing is less expensive than common or preferred stock financing Green Goose Automation Company currently has no debt in its capital structure, but it is considering adding some debt and reducing the percentage of outstanding equity in its capital structure. The film's current (unlevered) beta s 1.20, and its cost of equity is 11.40. Because the firm has no debt in its capital structure, its welghted average cost of capital (WACC) also equals 11.40. The risk-free rate of interest (FR) is 3%, and the market risk premium (RPM) is 7%. Green Goose's marginal tax rate is 35%. Green Goose is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial information that follows to analyze its WACC. Complete the following table. D/A Ratio E/A Ratio Bond Rating Before tax cost of Levered Beta WACC 0.0 Cost of Equity (t.) 11.40% 12.8096 15.049 012 D/E Ratio 0.00 0.25 0.67 1.50 4.00 11.40% 11.339 0.4 BBB No 0.6 12.1796 0.8 33.24% Credo Now Save & Continue Continue without saving