equity cost of capital 8.2%

debt cost of capital 6.7%

marginal corporate rate 45%

debt to equity ratio 3.2

Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 8.2%, a debt cost of capital of 6.7%, a marginal cor Goodyear maintains a constant debt-equity ratio. a. What is Goodyear's WACC? b. What is Goodyear's unlevered cost of capital? c. Explain, intuitively, why Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC. c. Explain, intuitively, why Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC. (Choose the best answer below) O A. The equity cost of capital exceeds the unlevered cost of capital because leverage makes the equity risk less than the overall risk of the firm. The WACC is less than the unlevered cost of capital because the WACC includes the benefit of the interest tax shield B. The equity cost of capital exceeds the unlevered cost of capital because leverage makes the equity risk greater than the overall risk of firm. The WACC is less than the unlevered cost of capital because the WACC includes the benefit of the interest tax shield O C. The equity cost of capital exceeds the unlevered cost of capital because leverage makes the equity risk greater than the overall risk of the fim. The WACC is less than the unlevered cost of capital because the WACC excludes the benefit of the interest tax shield O D. The equity cost of capital exceeds the unlevered cost of capital because leverage makes the equity risk less than the overall risk of the firm. The WACC is less than the unlevered cost of capital because the WACC excludes the benefit of the interest tax shield