You are evaluating how much your company can afford to borrow.

There are currently 7.5 million shares outstanding with a price of 100 per share. The market value of the firms outstanding debt is currently 200 million. You are rated presently as BBB.

Beta of the stock is 1.45.

Risk-free rate is 5%.

Marginal tax-rate of 35%.

Market premium is 6%.

The current BBB rate is 10% while the B rate is 12%.

If you borrow 100 million more, the rating of your company will change to B.

1. What would be the firms weighted average cost of capital after the additional borrowing?
2. Would you decide to proceed with the additional borrowing? explain