You have estimated your current cost of equity at $10\mathrm{.}5\%$ and your current levered beta at $1\mathrm{.}25,$ your cost of borrowing $($pre$-$tax$)$ is $5\mathrm{.}0\%$ and your current capital structure is $30\%$ debt and $70\%$ equity. Your company's tax rate is $30\%.$ You are considering issuing additional shares of stock to pay down some of your debt. This would change your capital structure to $5\%$ debt and $95\%$ equity and decrease your pre$-$tax cost of borrowing to $4\%.$ The risk$-$free rate is $3\%$ and the market risk premium is $6\%.$ Round your answers to four decimal places.

Calculate the unlevered beta.

Calculate your new levered beta and cost of equity.

Calculate your WACC with each capital structure.

Which one is the optimal capital structure and why?