Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to decide whothor to revise its target capital structure Currently targets a 50-50 mix of debt and equity but it is considering a target capital structure with 90% debt. American Exploration currently has 7% after-tax cost of debt and a 14% cost of common stock The company does not have any preferred stock outstanding a. What is American Exploration's current WACC? b. Assuming that is cost of debt and equity remain unchanged what will be American Exploration's WACC under the revised target capital structure? c. Do you think shareholders are affected by the increase in debt to 90%If so, how are they affected? Are the common stock claims riskie now? d. Suppose that in tesponse to the increase in debt, American Exploration's shareholders increase their required return so that cost of common equity is 18% What wil its new WACC be in this case? e. What does your answer in part d suggest about the tradeoff betwoen financing with debt versus equity? a. American Exploration's current WACC under the 50-50 mix of debt and equity is % (Round to two docimal places) b. Assuming that its cost of debt and equity remain unchanged, American Exploration's WACC under the revised target capital structure of 90% debt and 10% equity 1% (Round to two decimal places) c. Do you think shatenolders ate afected by the increase in debt to 90%? so how are they atlected? (Select the best answer below) OA No only bondholders are fotod because there is a greater chance that the firm may not be able to make the interest payments OB. No, shareholders have the right to increase the required rate of refon, which in turn may lower the fun's risk of bankruptcy OC Yes, their common stock clams are riskier now because larger interest expenses must be paid prior to any dividend payment OD Yes, shareholders benefit from the increase of debt financing because the interest expenses paid to bondholders are tax exempt dit in response to the increase in debt. American Exploration's shareholders increase their required retum so that cost of common equity is 10% the new WACC in vsco (Round to wo decimal places) e. What does your answer in part d suggest about the tradeoff between financing with debt versus equity (Select from the drop down menus) increasing the percentage of debt financing the risk of the company not be ng able to make sts interest payments and can lead to shareholders increasing the required return which are the cost of equity capital