Now FM Donut Bakery is thinking of changing its capital structure. It$$s current capital structure

is $50\%$ debt and $50\%$ common equity. The company is thinking of changing its capital structure

to $70\%$ debt and $30\%$ common equity. Currently, its common stock is traded at a price of $$10$ per

share and the stock is in equilibrium. The company has just paid dividends of $$1\mathrm{.}10$ per share.

The perpetual common dividend growth rate is constant at $5\%.$ The risk free rate is $4\%$ and the

market risk premium is $6\%.$ FM has bonds yielding $7\%.$ The investment banker estimates that

the before$-$tax cost of debt would be $9\%$ after the change in capital structure. FM$$s tax rate is

$35\%.$ How would this proposed change in capital structure affect its WACC? Should FM change

its capital structure?