Cost of Capital

A company is financed by 40% debt and 60% equity. The cost of debt before tax is 6%, and the cost of equity is 12%. The corporate tax rate is 25%.

Requirements: (a) Calculate the after-tax cost of debt. (b) Calculate the Weighted Average Cost of Capital (WACC). (c) If the company plans to invest in a project that requires a $200,000 investment, what is the minimum return it should expect from the project based on WACC? (d) Discuss how the WACC would change if the company increased its debt ratio to 50%.