1. A specific company has a target capital structure of 70% common stock, 5% preferred stock, and 25 % debt. The cost of equity is 14%; the cost of preferred stock is 6%; and the cost of debt is 7.5%. The tax rate is 35%. What is the Weighted Average Cost of Capital (WACC)? Begin with the general formula.
2. Firms sometimes establish facilities in foreign countries with comparatively low labor costs. Nevertheless, the labor cost advantage occasionally erodes to the point the firm closes the facility. Why does the labor cost advantage in such nations decline over time (other than changes in exchange rates)?