QUESTION - 2 (15 Marks) Equity Lighting Corporation wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 30% debt, 10% preference shares and 60% ordinary shares. Considering Equity's risk profile, shareholders expect a return of 14% on their investment, the cost of preference shares financing is 9% and the before-tax cost of debt financing is 11%. a. Calculate the WACC given the three different tax rate assumptions given below 1. Tax rate = 40% 2. Tax rate = 30% 3. Tax rate = 25% ( 3*4 marks = 12 marks) b. Describe the relationship between changes in the rate of taxation and the WACC. (3 marks)|| Version-1 2