Byron Corporation's present capital structure, which is also its.'target capital structure, is 40 percent debt and 60 percent common equity. Next year's net income is projected fco be , 21,000, and Byron's payout ratio is 30 percent. The company's earnings and dividends are growing at a constant rate of 5 percent; the last dividend (D*) was (.2.00; and the current equilibrium stock price is $21. 88. Byron can raise up to $20,000 of debt at a 12 percent before-tax cost. All debt after $20,000 will cost 16 percent. If Byron issues new common stock, a 20 percent flotation cost will be incurred. The firm's marginal tax rate is 40 percent.