Question: Please help solve for the values in the drop downs... As a firm takes on more debt, its probability of bankruptcy increases Other factors held

 Please help solve for the values in the drop downs... As

Please help solve for the values in the drop downs...

As a firm takes on more debt, its probability of bankruptcy increases Other factors held constant, a firm whose earnings are relatively volatile faces a greater chance of bankruptcy. Therefore, when other factors are held constant, a firm whose earnings are relatively volatile should use less debt than a more stable firm. When bankruptcy costs become more important, they reduce the tax benefits of debt. Drugal Brewing Co. currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firm's unlevered beta is 1.25, and its cost of equity is 12.75%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 12.75%. The risk-free rate of interest (TRF) is 4%, and the market risk premium (RP) is 7%. Drugal Brewing Co.'s marginal tax rate is 30%. Drugal Brewing Co. 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 fin ncial information that follows to analyze its weighted average cost of capital (WACC). Complete the following table

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