WestGas$$ Conveyance, Inc. WestGas$$ Conveyance, Inc., is a large U$.$S$.$ natural gas pipeline company that wants to raise$$ $$120$ million to finance expansion. WestGas wants a capital structure that is $50\%$ debt and $50\%$ equity. Its corporate combined federal and state income tax rate is $40\%.$ WestGas finds that it can finance in the domestic U$.$S$.$ capital market at the rates listed in the popup$$ window: LOADING.... Both debt and equity would have to be sold in multiples of$$ $$20$ million, and these cost figures show the component$$ costs, each, of debt and equity if raised $50\%$ by debt and $50\%$ by equity. A London bank advises WestGas that U$.$S$.$ dollars could be raised in Europe at the following$$ costs, also in multiples of$$ $$20$ million, while maintaining the $50/50$ capital structure. Each increment of cost would be influenced by the total amount of capital raised. That$$ is$,$ if WestGas first borrowed$$ $$20$ million in the European market at $6\%$ and matched this with an additional$$ $$20$ million of$$ equity, additional debt beyond this amount would cost $11\%$ in the United States and $9\%$ in Europe. The same relationship holds for equity financing.

a$.$ Calculate the lowest average cost of capital for each increment of$$ $$40$ million of new$$ capital, where WestGas raises$$ $$20$ million in the equity market and an additional$$ $$20$ in the debt market at the same time.

A$1$: If WestGas plans an expansion of $$120$ Million, what is the lowest averahe cost of capital for the first $40$ million of new capital?

A$2$: What is the lowest average cost of capital for the second $$40$ of new capital

A$3$: What is the lowest average cost of capital for the $3$rd $$40$ million of new capital

A$4$: What will be the weighted average cost of capital for the $$120$ million expansion?

b$.$ If WestGas plans an expansion of only$$ $$60$ million, how should that expansion be$$ financed?

c$.$ What will be the weighted average cost of capital for the$$ $$60$ million

WestGas Conveyance, Inc. WestGas Conveyance, Inc., is a large U$.$S$.$ natural gas pipeline company that wants to raise $$120$ million to finance expansion. WestGas wants a capital structure that is $50\%$ debt and $50\%$ equity. Its corporate combined federal and state income tax rate is $40\%.$ WestGas finds that it can finance in the domestic U$.$S$.$ capital market at the rates listed in the popup window: $.$ Both debt and equity would have to be sold in multiples of $$20$ million, and these cost figures show the component costs, each, of debt and equity if raised $50\%$ by debt and $50\%$ by equity. A London bank advises WestGas that U$.$S$.$ dollars could be raised in Europe at the following costs, also in multiples of $$20$ million, while maintaining the $\frac{50}{50}$ capital structure. Each increment of cost would be influenced by the total amount of capital raised. That is$,$ if WestGas first borrowed $$20$ million in the European market at $6\%$ and matched this with an additional $$20$ million of equity, additional debt beyond this amount would cost $11\%$ in the United States and $10\%$ in Europe. The same relationship holds for equity financing.

a$.$ Calculate the lowest average cost of capital for each increment of $$40$ million of new capital, where WestGas raises $$20$ million in the equity market and an additional $$20$ in the debt market at the same time.

b$.$ If WestGas plans an expansion of only $$60$ million, how should that expansion be financed?

c$.$ What will be the weighted average cost of capital for the expansion?

a$.$ If WestGas plans an expansion of $$$20$ million, what is the lowest average cost of capital for the first $$40$ million of new capital?

$\%($Round to two decimal places.$)$

Data table

$($Click on the following icon in order to copy its contents into a spreadsheet.$)$

$\backslash$table$[[,\backslash$table$[[$Cost of$],[$Costs of Raising Capital in the Market$],[$Domestic Equity$]],\backslash$table$[[$Cost of$],[$Domestic Debt$]],\backslash$table$[[$Cost of$],[$European Equity$]],\backslash$table$[[$Cost of$],[$European Debt$]]],[$Up to $$40$ million of new capital,$11\%,8\%,13\%,6\%$