EuroAsia AutoPart Firm. EuroAsia Auto Firm is a Polish manufacturer of auto-parts. Its cost of debt is 16%. The risk-free rate of interest is 8.5%. The expected return on the Turkish market portfolio is 22%. After effective taxes, EuroAsia’s effective tax rate is 25%. Its optimal capital structure is 80% debt and 20% equity.

a. If EuroAsia’s beta is estimated at 1.1, what is its weighted average cost of capital?

b. If EuroAsia’s beta is estimated at 0.9, significantly lower because of the high demand for automobile parts, what is its weighted average cost of capital?