The Nantucket Nugget is unlevered and is valued at $640,000. Nantucket is currently deciding whether including debt in their capital structure would increase their value. The current of cost of equity is 12%. Under consideration is issuing $300,000 in new debt with an 8% interest rate. Nantucket would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding. What will Nantucket's WACC and cost of equity be? What would the WACC and cost of equity be with a 34% tax rate.

Equations provided:

Case 1 (no tax) :

Re = Ru +(Ru-Rd) * D/E

WACC = (D/V * Rd) + (E/V * Re)

Case 2 (tax):

Re= Ru + (Ru-Rd) * D/E * (1-Tc)

WACC = (D/V* Rd) * (1-Tc) + (E/V * Re)