9. Determining the optimal capitalstructure Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying toidentify its optimal capital structure. Transworld Consortium Corp.has gathered the following financial information to help with theanalysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38% Which capital structure shown in the preceding table isTransworld Consortium Corp.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 40%; equity ratio = 60% Debt ratio = 30%; equity ratio = 70% Debt ratio = 60%; equity ratio = 40% Debt ratio = 50%; equity ratio = 50% Consider this case: Globex Corp. is an all-equity firm, and it has a beta of 1. Itis considering changing its capital structure to 65% equity and 35%debt. The firm’s cost of debt will be 6%, and it will face a taxrate of 40%. What will Globex Corp.’s beta be if it decides to make thischange in its capital structure? 1.45, 1.32, 1.52,1.72 Now consider the case of another company: U.S. Robotics Inc. has a current capital structure of 30% debtand 70% equity. Its current before-tax cost of debt is 6%, and itstax rate is 40%. It currently has a levered beta of 1.25. Therisk-free rate is 3%, and the risk premium on the market is 8%. U.S. Robotics Inc. is considering changing its capital structureto 60% debt and 40% equity. Increasing the firm’s level of debtwill cause its before-tax cost of debt to increase to 8%. Use theHamada equation to unlever and relever the beta for the new levelof debt. What will the firm’s weighted average cost of capital(WACC) be if it makes this change in its capital structure? (Hint:Do not round intermediate calculations.) 10.1, 9.6, 7.6,8.1 Which of the following statements regarding a firm’s optimalcapital structure are true? Check all that apply. The optimal capital structure minimizes the firm’sWACC. The optimal capital structure maximizes the firm’s stockprice. The optimal capital structure minimizes the firm’s costof debt. The optimal capital structure maximizes the firm’sEPS. The optimal capital structure minimizes the firm’s costof equity.