Zack Corporation is a large sized company. Its main line of business is extraction of minerals. The company's management is endeavoring to investigate and determine the optimal capital structure. For this purpose, a team of financial advisors was set up in collaboration with the company's bankers. The team has developed the following data regarding the use (proportion) of debt in the capital structure and the associated before tax cost of debt: Proportion of Debt W.: Before Tax Cost of Debt (K) 10% 7.0% 7.3% 30% 80% 40% 8.8% 50% 10,09 60% 15.0% 20% The company uses and applies the Capital Assets Pricing Model to estimate its cost of common equity. The company estimates that the risk free rate is 5.0%. The market risk premium is 6.0%, and its tax rate is 40 percent. The company estimates that if it had no debt, its unlevered beta would be 1.1. Required: A. Based on the above information, what is the firm's optimal capital structure? What would the weighted average cost of capital be at the optimal capital structure? [8 Marks] Show all relevant calculations and tabulation. B. If a firm went from zero debt to successively higher levels of debt, why would you expect its stock price to first rise, then hit a peak, and then begin to decline? [2 marks]