As the debt to assets increases from 0% to 100%, the cost of debt financing can be estimated with the following function:

1% + (1/3) (% debt)^2

Use the same function for the cost of equity (change out the %debt for the %equity in the equation) and a tax rate of 30%, with a dividend payout ratio of 60% and an EPS of $2.50. There are no preferred shares.

Make a table of debt to assets with the cost of debt, the after tax cost of debt, and the cost of equity (use each 10% level of debt from 10% to 90%). Graph these 3 functions.

Set up an equation for the WACC and use the Solver function in Excel to find the minimum cost of capital.

Enter all answers in percent with no "%" (i.e. 21.4% = 21.4), one decimal place is sufficient since there is a wide tolerance for numeric answers.

At what level of debt is the minimum cost of capital?