Problem1:

What is the weighted average cost of capital for a corporation that finances an

expansion project using 40% retained earnings and 60% venture capital? Assume the

interest rates are 10% for equity financing and 16% for debt financing.

problem2:

Your boss, whose background is in financial planning, is concerned about the

company's high-weighted average cost of capital of 21%. He has asked you to

determine what combination of debt-equity financing would lower the company's WACC

to 13%. If the cost of the company's equity capital is 6% and the cost of debt financing

is 28%, what debt-equity mix would you recommend?