A company is trying to decide whether to revise its target capital structure. Currently, it targets 50% debt and 50% equity. However, it is considering changing the mix to 70% debt and 30% equity. Their debt currently has an after-tax cost of 6% and the equity costs them 12%. They do not have any preferred stock.
A. What is their current WACC?
B. Assuming that the cost of debt and equity remain unchanged, what will be their WACC if they incerase debt to 70% as proposed?