6. Mill Co. is considering to change its current capital structure (30% debt vs. 70% equity) to new capital structure (50% debt vs. 50% equity). The 10-year T-Note is 2%and MRP is 6%. Its current cost of equity is 11%.

What would Mill Co.'s NEW cost of equity be if Mill Co. decides to adapt new capital structure? Assume tax rate to be 25%.

1) 9.87% 2) 13.94% 3)10.65% 4) 11%

15. Mill Co. wants to estimate its WACC Based on the information below, what is its WACC?

26-year, 7.5% annual coupon bonds and sells for $920. (semi-annually compounding)

The risk-free market rate is 6% The market risk premium is 5% The stock's beta is 2. The company's tax rate is 25%

The company's target capital structure consists of 70% equity and 30% debt.

The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital.

1. 13.06% 2. 10.56% 3. 12.37% 4. 9.89% 5. 8.98%