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(Weighted average cost of capital) ABBC Inc. operates a very successful chain of yogurt and coffee shops spread across the southwestern part of the United States and needs to raise funds for its planned expansion into the Northwest. Thefirm's balance sheet at the close of 2009 appeared asfollows:

Cash	$2,010,000
Accounts receivable	4,580,000
Inventories	1,540,000	Long-term debt	$8,141,000
Net property, plant, and equipment	32,575,000	Common equity	32,564,000
Total assets	$40,705,000		Total debt and equity	$40,705,000

Atpresent, thefirm's common stock is selling for a price equal to 2.5 times its bookvalue, thefirm's investors require a return of 18 percent, thefirm's bonds command a yield to maturity of 8percent, and the firm faces a tax rate of 35 percent. At the end of the previousyear, ABBC's common stock was selling for a price of 2.5 times its bookvalue, and its bonds were trading near their par value.

a.What doesABBC's capital structure looklike?

b.What isABBC's weighted average cost ofcapital?

c.IfABBC's stock price were to rise such that it sold at 3.5 times its book value and the cost of equity fell to 15percent, what would thefirm's weighted average cost of capital be(assuming the cost of debt and tax rate do notchange)?

a.What is the proportion of debt financing inABBC's capitalstructure? ______% (Round to two decimalplaces.)