1. Plerce Products Inc. is considering changing its capital structure. Pierce currently has no debt and no preferred stock, but would like to add some debt to take advantage of low interest rates and the tax shield. Its Investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Tax rate 0.40 R 0.05 Bu -0.8 R-R-0.06 w 1-01 Levered Beta WACC 0.2 0.4 0.6 wy 100% 80% 60% 40% D/E 0.00 0.25 0.67 1.50 to 6.0% 70% 8.0% 9.0% Hamada beta (levered beta): P.-Bu[1-1-1). CAPM equation: RL-RP R-Rel WACC = won(1-1) + (w) x (ru) Using the formulas above calculate WACC (the last column) and show the D/E combination that would maximize firm value. For that D/E ratio show your cakulations took place under each column (50 MARKS