F. Pierce Products Inc. is considering changing its capitalstructure. F. Pierce currently has no debt and no preferred stock,but it would like to add some debt to take advantage of lowinterest rates and the tax shield. Its investment banker hasindicated that the pre-tax cost of debt under various possiblecapital structures would be as follows:
* Use the exact value of 2/3 in your calculations.
F. Pierce uses the CAPM to estimate its cost of common equity,rs and at the time of the analaysis the risk-freerate is 7%, the market risk premium is 6%, and the company's taxrate is 40%. F. Pierce estimates that its beta now (which is"unlevered" because it currently has no debt) is 1.35. Based onthis information, what is the firm's optimal capital structure, andwhat would be the weighted average cost of capital at the optimalcapital structure? Do not round intermediate calculations. Roundyour answers to two decimal places.
Debt: %Equity: %WACC: %
F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred
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answerhappygod
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