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Flashtronics is trying to determine its optimal capitalstructure. The company’s capital structure consists of debt andcommon stock.  In order to estimate the cost of debt, thecompany has produced the following table:

Debt-to-total-              Equity-to-total-               Debt-to-equity           Bond      B-Tcost

assets ratio(w_d)           assetsratio(w_c)               ratio(D/E)                rating      ofdebt

                                                                                                                                             

0.10                            0.90                      0.10/0.90=0.11         AA              6.0%

0.20                            0.80                      0.20/0.80=0.25           A               6.6

0.30                            0.70                      0.30/0.70=0.43           A               7.3

0.40                            0.60                      0.40/0.60=0.67          BB              7.9

0.50                            0.50                      0.50/0.50=1.00           B               8.7

The company’s tax rate is 35 percent.

The company currently has a D/E ratio of 20% and uses the CAPMto estimate its cost of common equity,k_s.  The risk-free rate is 4.5 percent and themarket risk premium is 6 percent. Flashtronics’ current beta is1.3.

On the basis of this information, what is Flashtronics’ optimalcapital structure, and what is the firm’s weighted average cost ofcapital (WACC) at this optimal capital structure?You must show theWACC to two decimal places at each debt level.