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S. The relationship between a firm's capital structure and othercompany attributes Under the assumption of Modigliani and Miller's original paper, afirm's stock price will be maximized at 100% Signaling theory implies that a fim with extremely favorable prospects will be more likely to issue to fund any new projects. When a firm announces a new stock offering the price of its stock will usually When information is managers have more information about a firm's prospects than investors do. Blue Ram Brewing Company currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity The firm's unlevered betais 1.15, and its cost of equity is 11.55%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals 11,59%. The risk free rate of interest (n) is 3.5%, and the market risk premium (RPM) is 7%, Blue Ram's marginal tax % rate is 25% Blue Ram 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 weighted average cost of capital (WACC). Complete the following table. D/Cap Bond Ratio E/Cap Ratio 1.0 Before Tax Cost of Debt (ta) Rating Levered Beta (6) 1.15 D/E Ratio 0.00 0.25 0.0 Cost of Equity 1.) 11.55% 13.0629 15.575% WACC 11.55% 11.530% 0.2 0.8 A 7.2% 0.4 0.6 0.6% BBB 1.725 7.7% 3.99 0.6 0.4 1.50 BB 2.444 12.248% 0.8 0.2 11.99 4.600 35.700%

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