Investment Theory:

Assume corporate taxes as detailed in the following question:

Williams & Sons Inc. has a debt-to-equity ratio of 2.5. The firms weighted average cost of capital (wacc) is 15%, and its pre-tax cost of debt is 10%. Assume a corporate tax rate of 30%.

a. What is Williams & Sons cost of equity (rE )?

b. What is Williams & Sons unlevered cost of equity (rA )?

c. What would Williams & Sons weighted average cost of capital (wacc) be if the firms debt-toequity ratio were 0.75? What if it were 1.5 would it be higher or lower? Explain