As a firm takes on more debt, its probability of bankruptcy . Other factors held constant, a firm whose earnings are relatively volatile faces a chance of bankruptcy. Therefore, when other factors are held constant, a firm whose earnings are relative debt than a more stable firm. When bankruptcy costs become more important, they the benefits of debt. outstanding equity. The firm's unlevered beta is1.2, and its cost of equity is12.40%. Because the firm has no debt in its capital structure, its weighted average cost of capital (WACC) also equals12.40%. The risk-free rate of interest (rRF) is4%, and the market risk premium (RP) is7%. General Forge's marginal tax rate is25%. information that follows to analyze its weighted average cost of capital (WACC). Complete the following table.
