One of your new employees notes that your debt has a lower cost of capital (5%)...

One of your new employees notes that your debt has a lower cost of capital (5%) than your equity (15%). So, he suggests that the firm swap its capital structure from 26% debt and 74% equity to 74% debt and 26% equity instead. He estimates that after the swap, your cost of equity would be 21%.

a. What would be your new cost of debt? Make your calculations based on your firm's pre-tax WACC.

b. Have you lowered your overall cost of capital?

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One of your new employees notes that your debt has a lower cost of capital ​(5​%)...

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One of your new employees notes that your debt has a lower cost of capital (5%)...