Problem 8 (10 points) Aaron Athletics is trying to determine its optimal capital structure. The company's capital structure consists of debt and common stock. In order to estimate the cost of debt, the company has produced the following table: % equity D/E Ratio Bond Rating Before-tax % debt financed (D/E) cost of debt financed (ra) 0.10 0.90 0.1111 AA 7.0% 0.20 0.80 0.25 7.2% 0.30 0.70 0.4286 A 8.0% 0.40 0.60 0.6667 BB 8.8% 0.50 0.50 0.50 . 9.6% The company's tax rate is 25%. The company uses the CAPM to estimate its cost of equity, rs. The risk-free rate is 5% and the market risk premium is 6%. Aaron estimates that if it had no debt its beta would be 0.9. On the basis of this information, what is the company's optimal capital structure, and what is the firm's cost of capital at this optimal capital structure