Queens Quality Construction Corp. is an affordable housing developer on the East Coast. The company is subject to the ups and downs of the construction industry and has a historical beta of 1.7. QQCC has traditionally operated with a capital structure of approximately 20% debt and 80% equity. The owner, Ebony Houston, is interested in selling the business and has hired you to look at approaches to enhancing its market value. You think overall value might increase if the firm operated at its optimal capital structure, but you dont know what that optimal level is.

A commercial banker has given you the following estimate of the rates that QQCC could borrow depending on its level of leverage.

% Debt	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%
kd	6%	6.5%	7%	8%	10%	12%	15%	19%	N/A	N/A

QQCC is subject to a total effective tax rate of 40%, the risk-free rate is 6%, and the market is returning 10%. So, the market risk premium (k_M k_RF) is 4%.

Calculate QQCCs cost of equity, k_e, as well as its average cost of capital, k_a (WACC), as functions of leverage where leverage, measured by debt as a percent of total capital, varies from 0% to 70% in 10% increments. Round your answers and b_u value to two decimal places. Do not round any other intermediate calculations. Enter numbers only, without "%". (Hint: The QQCCs beta is levered at a 20/80 debt/equity level. Begin by calculating the unlevered beta.)

% Debt	0%	10%	20%	30%	40%	50%	60%	70%	80%	90%
kd	6%	6.5%	7%	8%	10%	12%	15%	19%	N/A	N/A
ke								20.21
ka								14.04

Use the results for k_a to estimate QQCCs optimal capital structure. Round the answers to the nearest whole percentage (enter numbers only, without "%"). The optimum capital structure is approximately % debt and % equity.

30 points