One of your new employees notes that your cost of debt has a lower cost of capity(6%) than your equity (14%). So, he suggests that the firm swap uts capital structure from 31% debt and 69% equity to 69% debt and 31% equity instead. He estimates that after the swap, your cost of equity would be 19%.

A. What would be your new cost of debt? Make calculations based on pre-tax WACC.

B. Have your lowered your overall cost of capital?

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