If a firm has $20 million debt and $80 million equity, the weights used to find the weighted average cost of capital is 20% for debt and 80% for equity. Cost of equity is lower than cost of debt. There is tax saving when debt capital is raised by a firm since interst payments are tax deductible. If before tax cost of debt is 8% and tax rate is 20%, the after tax cost of debt is 6%