Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure. Currently it targets a 5050mix 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 its 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 riskier now? d. Suppose that in response to the increase in debt, American Exploration's shareholders increase their required return so that cost of common equity is 18%. What will its new WACC be in this case? e. What does your answer in part d suggest about the tradeoff between financing with debt versus equity? a. American Exploration's current WACC under the 5050 mix of debt and equity is \%. (Round to two decimal 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 is \%. (Round to two decimal places.) c. Do you think shareholders are affected by the increase in debt to 90% ? If so, how are they affected? (Select the best answer below.) A. Yes, their common stock claims are riskier now because larger interest expenses must be paid prior to any dividend payment. B. Yes, shareholders benefit from the increase of debt financing because the interest expenses paid to bondholders are tax exempt