hunderhorse Oil. Thunderhorse Oil is a U.S. oil company. Its current cost of debt is 7.6%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.1%. The expected return on the market portfolio is 8.5%. The company's effective tax rate is 42%. Its optimal capital structure is 35% debt and 65% equity.

a. If Thunderhorse's beta is estimated at 0.7 , what is Thunderhorse's weighted average cost of capital?

b. If Thunderhorse's beta is estimated at 0.2 , significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weighted average cost of capital?