Assume all of the information in Problem 11.1 holds true except that the market imperfection of taxes

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Assume all of the information in Problem 11.1 holds true except that the market imperfection of taxes exists and that the Leland Hotel's tax rate is 40%.

Required:

1. Calculate the weighted average cost of capital, k4, when:

a. D/E = 0 (or L = 0%)

b. D/E = .25 (or L = 20%)

ce, D/E = 1.0 (or L = 50%)

d. D/E = 4.0 (or L = 80%)

2. Explain why you got the answers you did.

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