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21) NRG Energy, Inc. (NRG) is an energy company with a market debt-equity ratio of 1.5 . Suppose its current debt cost of capital is

image text in transcribed 21) NRG Energy, Inc. (NRG) is an energy company with a market debt-equity ratio of 1.5 . Suppose its current debt cost of capital is 3%, and its equity cost of capital is 16%. Suppose also that if NRG issues equity and uses the proceeds to repay its junior debt and reduce its debt-equity ratio to 1 , it will lower its debt cost of capital to 1%. With perfect capital markets, what effect will this transaction have on NRG's equity cost of capital and WACC? 22) NRG Energy, Inc. (NRG) is an energy company with a market debt-equity ratio of 1.5 . Suppose its current debt cost of capital is 3%, and its equity cost of capital is 16%. Suppose also that if NRG issues equity and uses the proceeds to repay its junior debt and reduce its debt-equity ratio to 0 . With perfect capital markets, what effect will this transaction have on NRG's equity cost of capital and WACC

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