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 $$20$ million in the European market at $7\%$ and matched this with an additional $$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.

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?

$q,$

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.$)$