Question: Evans Technology has the following capital structure. Debt 40% Common equity 60 The aftertax cost of debt is 6 percent, and the cost of common

Evans Technology has the following capital structure.

Debt	40%
Common equity	60

The aftertax cost of debt is 6 percent, and the cost of common equity (in the form of retained earnings) is 13 percent.

What is the firms weighted average cost of capital?

Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.

An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity.

Under this new and more debt-oriented arrangement, the aftertax cost of debt is 7 percent, and the cost of common equity (in the form of retained earnings) is 15 percent.

Recalculate the firm's weighted average cost of capital.

Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.

Which plan is optimal in terms of minimizing the weighted average cost of capital?

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