In this problem, you will be calculating the optimal capital structure for a hypothetical company by identifying the lowest WACC over a range of potential debt and equity percentages. Use the information provided below to complete the table and calculate the: i) after-tax cost of debt, ii) the levered beta, iii) cost of equity, and iv) the WACC. Once you've completed the table, state which percentage of debt provides the lowest WACC and indicate the WACC value.
								Percent Financed with Debt (wd)	Before-tax Cost Debt (rd)		Input Data
											Risk-free rate		4.5%
											Market risk premium		5.5%
	Unlevered beta		1.3
0%	5.0%		Tax rate		35.0%
10%	5.8%
20%	7.3%
30%	9.2%
40%	11.5%
50%	14.4%
60%	17.9%
Fill in formulas in the yellow cells to find the optimum capital structure.
			(i)	(ii)	(iii)	(iv)
% Debt	% Equity	Debt/Equity	A-T Cost of	Levered	Cost of
Ratio (wd)	Ratio (ws)	Ratio (wd/ws)	Debt (rd)	Beta	Equity	WACC
0%	100%	0.00
10%	90%	0.11
20%	80%	0.25
30%	70%	0.43
40%	60%	0.67
50%	50%	1.00
60%	40%	1.50
		Optimum debt ratio =
		WACC at optimum debt ratio =