NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of

15 %15%.

Suppose NatNah decides to increase its leverage to maintain a marketdebt-to-value ratio of

0.50.5.

Suppose its debt cost of capital is

7 %7%

and its corporate tax rate is

35 %35%.

If NatNah's pre-tax WACC remains constant, what will be its (effective after-tax) WACC with the increase in leverage?The effective after-tax WACC will be

%.

(