A corporate (taxed at 35%) has a financing structure made of 70% debt and 30% equity. The debt is borrowed at 7.0% from the bank, and the cost of equity is deemed to be 12%.

a) Calculate the WACC of this firm

b) Simulate what the WACC would be if debt was made to represent 20% or 80% of the capital structure. Explain the outcome and draw the necessary conclusions as to the optimal capital structure.

c) Explain under which 3 conditions the WACC of a company can be used as the discount rate to assess the financial validity of investment projects