One of your new employees notes that your debt has a lower cost of capital

(6%)

than your equity

(14%).

So, he suggests that the firm swap its capital structure from

29%

debt and

71%

equity to

71%

debt and

29%

equity instead. He estimates that after the swap, your cost of equity would be

22%.

a. What would be your new cost of debt? Make your calculations based on your firm's pre-tax WACC.

b. Have you lowered your overall cost of capital?