You work in the corporate finance division of the Costco and your boss has asked you to review the firms capital structure. Specifically, your boss is considering changing the firms debt level. Your boss remembers something from his MBA program about capital structure being irrelevant, but isnt quite sure what that means. You know that capital structure is irrelevant under the conditions of perfect markets and will demonstrate this point for your boss by showing that the weighted average cost of capital remains constant under various levels of debt. So, for now, suppose that capital markets are perfect as you prepare responses for your boss. You would like to analyze relatively modest changes to Costcos capital structure. You would like to consider two scenarios: the firm issues $1 billion in new debt to repurchase stock, and the firm issues $1 billion in new stock to repurchase debt. Use Excel t6. Prepare a written explanation for your boss explaining the relationship between capital structure and the cost of capital in this exercise. 7. What implicit assumptions in this exercise generate the results found in Question 5?