Thunderhorse Oil. Thunderhorse Oil is a U.S. oil company. Its current cost of debt is 6.9%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.2%. The expected return on the market portfolio is 7.8%. The company's effective tax rate is 38%. Its optimal capital structure is 75% debt and 25% equity.

a. If Thunderhorse's beta is estimated at , what is Thunderhorse's weighted average cost of capital?

b. If Thunderhorse's beta is estimated at , significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weighted average cost of capital?