Exam 3 - Repeat 2 A firm's current capital structure consists of 50 percent debt and 50 percent common stock. The firm's before-tax cost of debt is 6 percent, its tax rate is 40 percent, and its cost of common stock is 11 percent (based on CAPM). Further, the risk-free rate is 4 percent and that the market risk premium is 5 percent. Calculate the firm's new weighted average cost of capital if it changes to a capital structure of 35 percent debt and the balance is equity. Answer: 7.6225% See, for example, Q40, Old Exams, Module 6