Union Street Records is considering a new capital structure. The CFO has prepared a list of options:

Option	Debt-to-capital ratio	Bond rating	Interest rate
1	0	AA	0.03
2	0.25	BBB	0.04
3	0.5	B	0.06
4	0.75	C	0.08

The company currently has a debt-to-capital ratio of 0.75 (option 4) and an equity beta of 1.7. The tax rate is 34%.

The risk-free rate is 2% and the expected equity market risk premium (MRP) is 6%.

unlevered beta: 0.57, levered beta for option 2 0.696

Part 3: Find the cost of equity for each option. What is the cost of equity for option 2 (debt-to-capital ratio of 0.25)?

Part 4: Find the WACC for each option. What is the WACC for option 3 (debt-to-capital ratio of 0.5)?

Part 5: What is the WACC at the optimal capital structure (note: it is one of the four values found in part 4)?