QUESTION $3$

Flagstaff Enterprises expected to have free cash flow in the coming year of $$8$ million, and this free cash flow is

expected to grow at a rate of $3\%$ per year thereafter. Flagstaff has an equity cost of capital of $13\%,$ a debt cost of

capital of $7\%,$ and it is in the $35\%$ corporate tax bracket.

If Flagstaff currently maintains a $\mathrm{.}5$ debt to equity ratio, then Flagstaff's after$-$tax WACC is closest to:

A$.9\mathrm{.}50\%$

B$.10\mathrm{.}25\%$

C$.8\mathrm{.}75\%$

D$.9\mathrm{.}55\%$