22. After-tax WACC (S16-5) Gamma Airlines has an asset beta of 1.5. The risk-free interest rate is 6%, and the market risk premium is 8%. Assume the capital asset pricing model is correct.

Gamma pays taxes at a marginal rate of 25%. Draw a graph plotting Gamma’s cost of equity and after-tax WACC as a function of its debt-to-equity ratio D/E, from no debt to D/E = 1.0.