an express dog food delivery service based in Frankfurt is considering changing its capital structure.

its current capital structure is as follows:

it has 2,000 5% annual coupon 10 year bonds outstanding which currently trade at 85. The book value for these bonds is $ 2.0 million.

its common stock sells at $20 per share with 200,000 shares issued and outstanding. Its par value is $ 5 per share and 400,000 shares are armortized. its common stock has a book value of $ 23 per share.

it has a current beta of 0.8. The risk rate is 4.5% , the market rate of return is 11%.

there is no preferred stock.

it is subject to a 40% marginal income tax rate.

its invest bank, Gebrueder Lehmann of Zuerich ,say that its optimal capital structure should be at 50%, 50% equity. At this level of debt, the cost of debt would be 6%. this level of debt will, of course, chnage its stock beta and result in different cost of equity.

e. what is its cost of equity if it were to reflect only business risk (i.e if there were no debt employed)?

f. what will its new after tax cost of debt be?

g. what will its new cost of equity be?

h. what will its new WACC be?