(Answered) Question in 1995 an analysis of the capital structure of

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Question: In 1995, an analysis of the capital structure of Reebok provided the following results on the weighted average cost of capital and firm value.

This analysis was based upon the 1995 earnings before interest and taxes of $ 420 million, and a tax rate of 36.90%.

a. Why is the optimal debt ratio for Reebok so high?

b. What might be some of your concerns in moving to this optimal?

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