I agree that if the company increases the amount of debt, it will be able to lower its cost of capital this is because debt financing tend to have tax advantages over the equity financing. The interest expenses of the debt tend to be tax deductible and this helps to reduce the cost of debt capital. If the amount of debt is increased form from 40% its evident form the WACC calculations that that the cost of capital will reduce from 3.99% to 3.96%.
Advice to the CEO
I would advise the CEO to adopt an optimal capital structure by looking for a structure that offers an ideal balance between debts and equity and one that will minimize the
