Currently, Hotel California has no debt (i.e., leverage=0). The CEO of Hotel California considers increasing leverage (=debt/(debt+equity)) 0.25. Currently, Hotel Californias CAPM beta is 0.75. The cost of debt () will be 10%, riskfree rate () is 2.5%, and market return () is 13.5%. Assume that the corporate tax rate () is 50%. Your task, as the CFO of Hotel California, is to provide the cost of capital under this proposed capital structure (i.e., 25% leverage). What is the weighted average cost of capital under the proposed capital structure (i.e., 25% leverage)?

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