2. Burlington Factories (BFS) currently exhibits a 20% debt-to-capital. Given the following data, estimate the after-tax cost of debt and cost of capital if the firm increases its debt-to-capital ratio to 30%. The T-bond rate = 2.2%. Hint: Complete cells sequentially, with multiple iterations if necessary to achieve convergence. Present minimum 2-digit basis points.

Debt to Capital Ratio	20%	30	Multiple Iteration
Debt	$3.500 M
Debt/Equity	25%
EBIT	$870M
Interest Expenses	$131M
Interest Coverage Ratio	6.641
Bond Rating	A
Interest Rate	3.7%
After-tax Cost of Debt	2.59%
Beta	1.19
Cost of Equity	8.15%
Cost of Capital	7.038%

Current average interest coverage ratios, credit ratings, and credit spreads are as follows:

Coverage Raio	Rating	Spread over Treasury
>10	AAA	.30%
7-10	AA	1.00%
5-7	A	1.50%
3-5	BBB	2.00%
2-3	BB	2.50%
1.25-2	B	3.00%
0.75-1.25	CCC	5.00%
0.50-0.75	CC	6.50%
0.25-0.50	C	8.00%
<0.25	D	10.00%