SL, Inc., is currently an all equity-firm with a beta of equity of 1. The risk-free rate

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SL, Inc., is currently an all equity-firm with a beta of equity of 1. The risk-free rate is 5 percent and the market risk premium is 8 percent. Assume the CAPM is true and that there are no taxes. What is the company’s weighted average cost of capital? If management levers the company at a debt to equity ratio of 5 to 1, using perpetual riskless debt, what will the WACC become? How would your WACC answer change if the government raises the tax rate from zero to 30 percent?

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