b.The c.Usir to tw d.Usir (Roun Exp Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure Currently it targets a 50-50 mix of debt and equity, but is considering a target capital structure with 90% debt. American Exploration currently has 5% after-tax cost of debt and a 10% cost of common stock. The company does not have any preferred stock outstanding a. What is American Exploration's current WACC? b. Assuming that its cost of debt and equity remain unchanged, what will be American Exploration's WACC under the revised target capital structure? c. Do you think shareholders are affected by the increase in debt to 90%? If so, how are they affected? Are the common stock claims riskier now? d. Suppose that in response to the increase in debt, American Exploration's shareholders increase their required retum so that cost of common equity . What do your answer in part d suggest about the tradeoff between financing with debt versus equity? a. American Exploration's current WACC under the 50-50 mix of debt and equity is [% (Round to two decimal places.) b. Assuming that its cost of debt and equity remain unchanged, American Exploration's WACC under the revised target capital structure of 90% datt and 10% equity is C. (Round to two decimal places.) c. Do you think shareholders are affected by the Increase in debt to 90%? If so, how are they affected? (Select the best answer below.) OA. No, shareholders have the right to increase their required rate of return, which in turn may lower the firm's risk of bankruptcy OB. No, only bondholders are affected because there is a greater chance that the firm may not be able to make the interest payments. OC. Yesshareholders benefit from the increase of debt financing because the interest expenses paid to bondholders are tax exempt. OD. Yes, their common stock claims are riskler now because larger interest expertiset must be paid prior to any dividend payment din response to the incream in debt. American Exploration's shareholders increase their required retum to that cost of common equity is 14%, the w WACC In this case % (Round to two decimal paco) What does your answer in part d sugpost about the tradeoff between financing windebt versus equity? (Select from the drop down manus) Increasing the percentage of debt financing the risk of the company not being able to make us interest payments and can lead to wholders increasing the required return which vases the cost of equity capital Click to select your answers Ready