To answer the following questions, you will need the following two equations:

Ksl = Ksu + D/E *(1 - T)*(Ksu - Kd)

WACC = We*Ksl + Wd*Kd*(1 - T)

To receive full credit you must show steps in your work. Just putting down the final answer will result in a deduction of 3 points per question.

a. You are trying to value No More Tears, Inc. (NMT) and need to find NMTs cost of equity. You know that NMTs industry has a cost of equity of 8%, a debt to equity ratio of 1.2, a cost of debt of 4%, and a tax rate of 25%. NMT has a debt to equity ratio of 1.75, a cost of debt of 4.5%, and a tax rate of 21%. Given this information, what is NMTs cost of equity?

b. You are trying to estimate the WACC for a company that you are valuing. You know that the industrys cost of equity is 8.5%. The industry uses 80% equity and 20% debt on average in its capital structure. The industry has a cost of debt of 5.5% and has a tax rate of 34%. Your company has a capital structure that consists of 55% equity and 45% debt. Your cost of debt is 6.2% and you have a tax rate of 40%. What is your WACC? (Hint...This one has a little trick. You have to find D/E using the given information.)