ABBC Inc. operates a very successful chain of yogurt and coffee shops spread across the southwestern part of the United States and needs to raise funds for its planned expansion into the Northwest. The firm's balance sheet at the close of 2019 appeared as follows:

Cash	$2,230,000
Accounts receivable	4,680,000
Inventories	1,680,000		Long-term debt	$8,025,000
Net property, plant, and equipment	32,674,000		Common equity	33,239,000
Total assets	$41,264,000		Total debt and equity	$41,264,000

At present, the firm's common stock is selling for a price equal to 3 times its book value, and the firm's investors require a return of 18 percent. The firm's bonds command a yield to maturity of 7 percent, and the firm faces a tax rate of 25 percent. At the end of the previous year, ABBC's bonds were trading near their par value.

a. What is the proportion of debt financing in ABBC's capital structure?

What is the proportion of equity financing in ABBC's capital structure?

b. What is ABBC's weighted average cost of capital?

C. If ABBC's stock price were to rise such that it sold at 3.5 times its book value and the cost of equity fell to 15 percent, what would the firm's weighted average cost of capital be (assuming the cost of debt and tax rate do not change)?

d. "The company would assume less debt financing, which will have a lower after-tax cost." (T or F)