Tools Tips Tips Assignment 13: Chapter 21 EOC problems eBook S Problem 21-04 6 The financial manager of a firm determines the following schedules of cost of debt and cost of equity for various combinations of debt financing Debt/Assets After-Tax Cost of Debt Cost of Equity 9% 9 10 20 " 10 30 40 10 50 12 60 14 70 10 15 Find the optimal capital structure (that is, optimal combination of debt and equity financing). Round your answers for the capital structure to the nearest whole number and for the cost of capital to one decimal place The optimal capital structure at and %equity with a cost of capital of b. Why does the cost of capital initially decline as the fem substitutes debt for equity financing? The cost of capital initaly declines because firm cost of debt is ww than the cost of equity c. Why will the cost of funds eventualy rise as the fem omes more financially leveraged and the cost of capital to increase As the firm becomes more financially leveraged and riskier, the cost of debt and equity wi which makes the cost of the debt financing d. Why is debt financing more comman than financing with preferred stock? Debt financing is more common than financing with preferred stock because of the adva lewer than the cost of the preferred stock e. If interest were not a tax-deductible expense, what effect would that have on the firm's cast of capital If interest were not a tax deductible, the cost of debt would be wher increasing the cost of capital Check My Wik Ove Ay x Bols MUCHARD 3 Q Check My Work Book Problem 21-04 The financial manager of a firm determines the following schedules of coat of debt and cost of equity for various combinations of debt financing After-Tax Cost of Debt Debt/Assets 0% Cost of Equity 10 Nie m 9 10 10 50 12 14 10 15 Find the mat capital structure Ohat is, optimal combination of debt and equity financing). Round your answers for the capital structure to the and for the cost of capital to one decimal place 20 debt and seputy with a cost of capital of bstitutes debt for equity financing e cost of equity Why does the cost of capital initially decine The cost I capital initially decines because the firm cost of c Why will the cost of funds eventually rise as the firm becomes more financially leverage As the fim becomes more financially leveraged and riske, the cost of debt and equity will and cause the cost of capital to incre d. Why is debt financing more common than financing with preferred stock? E which makes the seat of the debt Debt financing is more common than finanong with preferred stock because of the trage financing wwer than the cast of the preferred stack interest were not a tax-deductible expense, what effect would that have on the firm's cost of capital If interest were not a tax deductible, the cost of delt would be higher the cost of capita