The Coromandel Yarn Factory (CYF) has a target debt-to-equity ratio of 0.55. Its current opportunity cost of equity is 14% and its current opportunity cost of debt is 7%. If the tax rate is 35%, what is CYFs weighted average cost of capital?

Part (b)

Ripping Yarns Inc has the same asset mix (it is in the same business) as CYF. Its target debt-to-equity ratio is 0.05, and its current debt is deemed riskless, because its operating cash flow will always exceed its debt service obligation. The risk-free rate is 3%, and Ripping is also in the 35% tax bracket. Compute Rippings opportunity cost of equity. To receive full credit state and justify any assumption you make.