Problem:
Shadow Corp. has no debt but can borrow at 6.9%. The firm's WACC is currently 8.7%, and the tax rate is 35%.
Required:
Question 1: What is Shadow's cost of equity?
Question 2: If the firm converts to 35% debt, what will it cost of equity be?
Question 3: If the firm converts to 40% debt, what will it cost of equity be?
Question 4: If the firm converts to 35% debt, what will the company's WACC be?
Question 5: If the firm converts to 40% debt, what will the company's WACC be?
Note: Show step by step solution and I also want complete calculation.