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One of your new employees notes that your debt has a lower cost of capital (6%) than your equity (15%). So, he suggests that the

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

(6%)

than your equity

(15%).

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

21%.

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?

Question content area bottom

Part 1

a. The new cost of debt is

enter your response here%.

(Round to two decimal places.)

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