16.32. Does the standard M&M proposition apply to nonfinancial liabilities?

16.30. Compute a graph similar to Exhibit 16.2. Use a spreadsheet. Your firm will be worth either $50,000 or $100,000 with equal probabilities. The cost of capital on your debt is given by the formula 8( rDebt) = 5% + 10% co Debt-but only if the debt is risky. (Hint: The risk-free rate of return is 11.85%. What is the WACC of the firm if it is 100% debt fi-nanced?)