Debt-to-Capital Equity-to-Capital Debt-to-Equity Before-Tax |[lost of Ratio Ratio Ratio Bond Rating Debt {Wall ‘2ch {WE} lral The ?rm has total capital of $5 million and 200,000 shares of common stock outstanding. Its EBIT is$500,000 and will not change if debt. at any,’ ofthe levels shown in the preceding table, is added tothe ?rm‘s capital structure. North Star uses the CAPM to estimate its cost of common equity. . Itestimates that the risk-free rate is 3.5%. the market risk premium is 4.5%, and its tax rate is 25%.North Sta r‘s current beta, which is because it has no debt, is 1.25. Calculate the co st of equity for ea ch of the capital structures shown in the preceding table. lwdl’ Mal {W El lrdl rs 0.00 1.00 0.0000 5.0% l ‘950.25 0.?5 0.3333 6.0 l l0.50 0.50 1.0000 3.3 l l 0.?5 0.25 3.0000 11.0 l l Note: enter results with two decimal places