Problem
Calculating WACC Shadow Corp. has no debt but can borrow at 5.75 percent. The firm's WACC is currently 8.9 percent, and the tax rate is 22 percent.
1. What is the firm's cost of equity?
2. If the firm converts to 25 percent debt, what will its cost of equity be?
3. If the firm converts to 50 percent debt, what will its cost of equity be?
4. What is the firm's WACC in part (2)? In part (3)?