6. Z. Taylor Products Inc. is considering changing its capital structure, Z. Taylor 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: (10) Market Debt-to- Value Ratio 0.0 0.10 0.20 0.30 0.40 Market Equity-to- Market Debt-to- Value Ratio Equity Ratio (D/S) 1.0 0.00 0.90 0.1111 0.80 0.2500 0.70 0.4286 0.60 0.6667 Before-Tax Cost of Debt 6.0% 6.3 7.0 8.8 11.0 Z. Taylor uses the CAPM to estimate its cost of common equity, rs, and at the time of the analysis the risk-free rate is 3%, the market risk premium is 6%, and the company's tax rate is 25%. Z. Taylor estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.9. Based on this information... a. What is the firm's optimal capital structure (i.e., what % of financing from debt vs. from common equity?) b. What would be the weighted average cost of capital at the optimal capital structure found in part a