Use the following information:

Debt: $$68,000,000$ book value outstanding. The debt is trading at $89\%$ of book value. The yield to maturity is $11\%.$

Equity: $1,800,000$ shares selling at $$35$ per share. Assume the expected rate of return on Federated$$s stock is $20\%.$

Taxes: Federated$$s marginal tax rate is Tc$=0\mathrm{.}21$

$.$

Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to $16\mathrm{.}75\%($D$/$V $=0\mathrm{.}1675).$ The pre$-$tax cost of debt has dropped to $10\mathrm{.}6\%.$ The company$$s business risk, opportunity cost of capital, and tax rate have not changed.