U.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 8%, and its tax rate is 40%. It currently has a levered beta of 1.15. The risk-free rate is 3.5%, and the risk premium on the market is 7%.

U.S. Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firms level of debt will cause its before-tax cost of debt to increase to 10%. Use the Hamada equation to unlever and relever the beta for the new level of debt. What will the firms weighted average cost of capital (WACC) be if it makes this change in its capital structure? (Hint: Do not round intermediate calculations.)

Which of the following statements regarding a firms optimal capital structure are true? Check all that apply.

The optimal capital structure minimizes the firms WACC.

The optimal capital structure minimizes the firms cost of equity.

The optimal capital structure minimizes the firms cost of debt

. The optimal capital structure maximizes the firms stock price.

The optimal capital structure maximizes the firms EPS.