You have the following information for the company Exxon. The beta coefficient for Exxon is .85 based on the past information. The 3-year average of 30-day T-bill rate is 2%, the average market return of (say, S&P 500 index) in the same period is 16%. Answer the following questions:

a. Exxon has the following capital structure: the firm issued 6 million shares of common stock with the stock price in c), the firm also issued 1.5 million shares of preferred stock with $4.5 preferred dividend per share, currently, Exxon has $25 millions in debts with interest rate as 6.5%. Suppose the current preferred stock price is $6 per share and the current common stock price is $9, and the corporate tax rate is 25%. What is the (after-tax) weighted average cost of capital for Exxon?

b. Why is Exxon able to undertake so much in debts? Is this related with the industry or business risk?

c. Will this firm undertake high operating leverage? Why or why not?