Increasing financial leverage increases both the cost of debt (r_debt) and the cost of equity (r_equity). So the overall cost of capital cannot stay constant. This problem is designed to show that the speaker is confused. Buggins Incorporated is financed equally by debt and equity, each with a market value of $1 million. The cost of debt is 8%, and the cost of equity is 14%. The company now makes a further $500,000 issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to 9% and the cost of equity to rise to 17%. Assume the firm pays no taxes.

After the debt issue, what percent of the firm is financed with debt?

Note: Do not round intermediate calculations. Enter your answer as a whole percent.

After the debt issue, what percent of the firm is financed with equity?

Note: Do not round intermediate calculations. Enter your answer as a whole percent.

What is the overall cost of capital?

Note: Enter your answer as a percent rounded to 1 decimal plac