Nestl Enterprises is estimating its cost of capital for the first time and has made the following estimates: The firms debt carries a AAA rating, which is currently yielding 6%; the firm pays taxes at a rate of 30%; the cost of equity is estimated to be 14%; and the firms debt is equal to 20% of its enterprise value.

1. What is Nestls estimated WACC?

2. If Nestl were to increase its debt level to 40% of enterprise value, the firms investment banker has told the firm that its credit rating would drop to AA and correspondingly its cost of debt financing would rise to 7%. If the cost of equity corresponding to this new capital structure were to rise to 16%, what would be the firms estimated WACC?

Given
	Cost of debt	0.06
	Tax Rate	0.3
	Cost of equity	0.14
	Debt/EV	0.2
a
	Source	Firm	Debt	Equity
	Weight			??
	Before-tax cost		??	??
	After-tax cost		??	??
	Weight * After-tax cost		??	??
	WACC	??
b
	Source	Firm	Debt	Equity
	Weight		0.4	0.6
	Before-tax cost		??	??
	After-tax cost		??	??
	Weight * after tax cost		??	??
	WACC	??