WACC and Optimal Capital Structure F. Pierce Products Inc. is considering changing its capital structure. F. Pierce curr

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WACC and Optimal Capital Structure
F. Pierce Products Inc. is considering changing its capital
structure. F. Pierce currently has no debt and no preferred stock,
but it would like to add some debt to take advantage of the tax
shield. Its investment banker has indicated that the pre-tax cost
of debt under various possible capital structures would be as
follows:
F. Pierce uses the CAPM to estimate its cost of common equity,
rs, and at the time of the analaysis the risk-free rate
is 5%, the market risk premium is 7%, and the company's tax rate is
25%. F. Pierce estimates that its beta now (which is "unlevered"
because it currently has no debt) is 1.3. Based on this
information, what is the firm's optimal capital structure, and what
would be the weighted average cost of capital at the optimal
capital structure? Do not round intermediate calculations. Round
your answers to two decimal places.
Debt: %
Equity: %
WACC: %