1. McCain Enterprises is thinking about changing its permanent capital structure from 40% debt to asset ratio to 50% debt ratio. The following information is currently available:

Cost of debt (RRR of creditors) is 7%. Tax rate is 25%. Required return on equity (cost of equity) given the 25% tax rate is 18.70%. If taxes did not exist, the RRR on equity would have been 20%. If the company switches to 50 debt the cost of debt is estimated at 8%.

1. Calculate the cost of equity after the switch to 50% debt.
2. Calculate the WACC after the switch to 50% debt.