Taxes and the Cost of Capital. Here is Icknield's market value balance sheet

The debt is yielding 7%, and the cost of equity is 14%. The tax rate is 21%. Investors expect this level of debt to be permanent.

a. What is Icknield's WACC?

b. How would the market value balance sheet change if Icknield retired all its debt?

Net working capital Long-term assets Value of firm $ 550 2,150 $2,700 Debt Equity $ 800 1,900 $2,700