As of 2021, long-term US Treasury notes yield 1.55%. P&Gs debt is rated Aa/AA and stock beta is about 0.40. High-grade corporate debt yields 3.00%, medium-grade yields 3.70% and low-grade yields 7.30%. The firm is taxed @ 20.00% and relies on long-term debt @ $23 billion and equity @ $47 billion for capital. The firm believes their capital structure is optimal. Management project the firms net income will equal $15.5 billion next year and will pay dividends equal to $8.5 billion. First, estimate the weighted, average, after-tax cost of capital for P&G when relying on retained earnings for equity. Estimate the cost of equity by the Bond Premium Model; the equity premium (R_m K_d) is estimated to be 5.00% and derive the cost of debt from their credit ratings. Second, identify the dollar equity breakpoint for the firms cost of capital when the company would no longer rely on retained earnings for the pro-rata share of capital but must issue common stock given projections of net income and dividends. Third, many mature firms pay high dividends, repurchase stock, and support growth by borrowing money rather than issuing new shares of stock. Fully identify the advantages of leveraging the balance sheet to create value and to support capital budgeting decisions.