Suppose that Microsoft is considering changing its capital structure, in light of the tough business environment. Currently, MSFT's total capital consists of $950 million in debt, $20 million in leased assets, $500 million of preferred stock, $900 million in common stock, and $750 million in retained earnings.
The after-tax specific costs are 7% for the debt, 8% for the leases, and 9% for the equity.
a. Find the weighted average cost of capital given the data above
b. If Microsoft wants to change its capital structure (i.e., lower their WACC), what should it do?