Assume that the corporate tax rate is 40%, cost of debt (pre-tax)=12%, cost of preferred stock =8% and the cost of common stock is 15%. Assume that debts total 60% of Common Equity. Assets are $960 million. Common equity is 30% of total assets. Preferred stock comprises the remainder of total assets.

What capital structure could the firm have if WACC=13.05%, and if the cost of the capital components were unchanged?

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