Carpetto Technologies Inc. has a market capitalisation of $50 million and $50 million in outstanding debt. Its corporate tax rate is 31%.

1.The beta of Carpetto Technologies Inc. is 1.7, the risk-free rate is 8.5%, and the return on market is 13.5%, what will be Carpettos cost of common equity using the Capital Asset Pricing Model (CAPM) approach?

2.Suppose Carpettos debt of cost of capital is 10.5%. What is Carpettos after tax debt of cost of capital? 3.What is unlevered cost of capital for Carpetto?

4.What is the weighted average cost of capital (WACC) for Carpetto?

5.Why its WACC (in part (iv)) is lower than the unlevered cost of capital (in part (3))?