Input Data Risk-free rate Market risk premium Unlevered beta Tax rate 4.0% 6.5% Percent Financed with Debt (wa) Before-tax Cost Debt (rd) 0.9 35.0% 6.0% 0% 10% 6.5% 20 21 22 23 20% 7.5% 30% 8.0% 40% 9.0% 12.0% 50% 60% 24 14.0% 16.0% 25 70% 26 27 Fill in formulas in the yellow cells to find the optimum capital structure. 28 Debt/Value 29 30 Ratio (wa) 31 Equity/Value Debt/Equity Ratio (w.) AT Cost of Debt (ra) Levered Beta Ratio (walw.) Cost of Equity 0% 1.0 0.00 WACC 32 33 34 10% 20% 30% 40% 0.9 0.11 0.8 0.25 0.7 0.43 0.67 35 0.6 36 50% 0.5 0.4 0.3 1.00 1.50 2.33 37 60% 38 39 40 41 42 43 70% WACC at optimum debt ratio Optimum debt ratio 44 45