Scenario: Cost of Capital for Company G

Company G has the following capital structure:

• Debt: $1,000,000 (10% interest rate)
• Equity: $2,000,000 (15% cost of equity)
• Tax Rate: 30%

Requirements:

1. Calculate the Weighted Average Cost of Capital (WACC).
2. Determine the after-tax cost of debt.
3. Compute the cost of equity using the Capital Asset Pricing Model (CAPM) if the risk-free rate is 3% and the market return is 8%.
4. Assess the impact on WACC if the proportion of debt increases to 50%.