Assume, for economies of scale, that this project is going to be financed entirel with debt. what would u use as your cost of capital for evaluting this project? Plastico is considering a major change in its capital structure. It has three options:

Option $1$: Issue $$1$ billion in new stock and repurchase half of its outstanding debt. This will make it a AAA rated firm $($AAA rated debt is yielding $11\%$ in the market place$).$

Option $2$: Issue $$1$ billion in new debt and buy back stock. This will drop its rating to A$-.($A$-$ rated debt is yielding $13\%$ in the market place$).$

Option $3$: Issue $$3$ billion in new debt and buy back stock. This will drop its rating to CCC $($CCC rated debt is yielding $18\%$ in the market place$).$

Answer the following questions:

What is the cost of equity under each option?

What is the after$-$tax cost of debt under each option?

What is the cost of capital under each option?

From a cost of capital standpoint, which of the three options would you pick, or would you stay at your current capital structure?