Problem 19-5 WACC

Whispering Pines Inc. is all-equity-financed. The expected rate of return on the companys shares is 13.25%.

a. What is the opportunity cost of capital for an average-risk Whispering Pines investment? (Enter your answer as a percent rounded to 2 decimal places.)

Opportunity cost of capital 13.25

b. Suppose the company issues debt, repurchases shares, and moves to a 28% debt-to-value ratio (D/V = 0.28). What will be the companys weighted-average cost of capital at the new capital structure? The borrowing rate is 8.55% and the tax rate is 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Weighted-average cost of capital ?