Consider the following current capital structure and two potential variations to the capital structure for KLM Corporation:

	Current	Financial Mix 1	Financial mix 2
Proportion of debt	50%	40%	60%
Proportion of equity	50%	60%	40%
Pre-Tax cost of debt	5.25	5.0%	5.5%
Cost of equity	7.9%	7.5%	8.3%
Corporate tax rate 30%

(a) Calculate the weighted average cost of capital for KLM Corporation under the three separate capital structures, i.e. Current, Mix 1 and Mix 2. Write your answers up to 4 decimal places of accuracy, e.g. 15.6789% is good, whereas 15.68% is not.

	Current	Financial Mix 1	Financial Mix 2
Weighted average cost of capital (rWACC)

i. Which of the three capital structures provides an optimal financing mix: __________________

ii. What is the WACC at the optimal capital structure? ____________________

(b) Consider the same problem except that now the firm pays only 9% corporate tax rate. Calculate the weighted average cost of capital for KLM Corporation under the three separate capital structures, i.e. Current, Mix 1 and Mix 2. Write your answers up to 4 decimal places of accuracy, e.g. 15.6789% is good, whereas 15.68% is not.

	Current	Financial Mix 1	Financial Mix 2
Weighted average cost of capital (rWACC)

i. Which of the three capital structures provides an optimal financing mix: __________________

ii. What is the WACC at the optimal capital structure? ____________________