. . You have been asked to analyze the capital structure of Stevens Steel, a small steel company. The company has supplied you with the following information: There are 100 million shares outstanding, trading at $ 10 a share - The firm has debt outstanding of $ 500 million, in market value terms. The beta for the firm currently is 1.04, the risk-free rate is 5%, and the market risk premium is5.5%. The firm's current bond rating is A; the default spread for A-rated bonds is 1.5%. The effective tax rate is 20%, but the marginal tax rate of 40%. Assume that you have computed the optimal debt to capital ratio to be 50%. If the pre-tax cost of debt will rise by 0.25% if it moves to the optimal, estimate the new cost of capital at 50%