A company has an optimal capital structure of 55% equity and 45% debt. This year they expect to have retained earnings of $6m. They can raise up to $3m in long term debt at 5%. All additional debt will cost 7% pretax. The companys marginal tax rate is 21%. 1. what is their breakpoint on equity

2. what is their first break point on debt

3. which will change first debt or equity?