Start with the partial model in the file Ch16 P16 Build a Model.xlsx on the textbook’s Web site. Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for different capital structures, as shown in the following table. Data for the risk-free rate, the market risk premium, an estimate of Reacher’s unlevered beta, and the tax rate are also shown. Reacher expects zero growth. Based on this information, what is the firm’s optimal capital structure, and what is the weighted average cost of capital at the optimal structure? 

Percent Financed with Debt (w.) 0% 5% 10% 15% 20% 30% 35% 40% Before-Tax Cost Debt (r.) 6.0% 6.1% 6.3% 6.7% 10.0% 12.5% 15.5% 18.0% Input Data Risk-free rate Market risk premium Unlevered beta Tax rate 4.5% 5.5% 1.1 25.0%