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1. What are two different ways to estimate the cost of equity for a firm? 2. Lewis runs an outdoor adventure company and wants to

1. What are two different ways to estimate the cost of equity for a firm?

2. Lewis runs an outdoor adventure company and wants to know what effect a tax change will have on his companys WACC. Currently Lewis has the following financing pattern:

Equity: 35% and cost of 14%

Preferred stock: 15% and cost of 11%

Debt: 50% and cost of 10% before taxes

What is the WACC for Lewis if the tax rate is a. 30%?

b. 40%?

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