Layers Inc. currently has no debt. If they choose to borrow, they can do so at a rate of 6.4%. The firms WACC is currently 9.5% and the tax rate is 35%. There are no costs of financial distress.

1. a) What is the companys cost of equity? (1 mark)

2. b) If the firm converts to =35% debt, what will its cost of equity be? (2 marks)

3. c) If the firm converts to 50% debt, what will its cost of equity be? (2 marks)

4. d) What is the companys WACC in part (c)?