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 $35\%.$ 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 $50/50$ capital structure. Each increment of cost would be influenced by the total amount of

capital raised. That is$,$ if WestGas first borrowed $$20$ million in the European market at $7\%$ and matched this with an additional $$20$ million of equity, additional debt beyond this amount would cost $13\%$ in the

United States and $12\%$ in Europe. The same relationship holds for equity financing.

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 $$120$ million, what is the lowest average cost of capital for the first $$40$ million of new capital?

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

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