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: 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 8 % and matched this with an additional $20 million of equity, additional debt beyond this amount would cost 13 % in the United States and 11 % 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 $120 million, what is the lowest average cost of capital for the first $40 million of new capital? nothing % (Round to two decimal places.

Cost OF Raisin capital in the market Cost Of domestic equity Cost of domestic debt cost of European equity cost of European

Up to $40 million of new capital 13% 9% 15% 8%

$41 million to $80 million of new capital 19% 13% 18% 11%

Abobe 80 million 22% 17% 24% 18%

!!Can I please have some help?