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ABC Company is a leading tech manufacturing company which has 8% cost of debt. The risk-free rate of interest is 3% and the risk premium

ABC Company is a leading tech manufacturing company which has 8% cost of debt. The risk-free rate of interest is 3% and the risk premium is 5%. After effective taxes, Al Hailals effective tax rate is 20%. Its optimal capital structure is 35% debt and 65% equity.

a. If Al ABCs beta is estimated at 0.75, what is its weighted average cost of capital?

b. If Al ABC s beta is estimated at 1.5, what is its weighted average cost of capital?

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