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1. A firm has a $400 million market capitalization and $250 million in debt. It also...

1. A firm has a $400 million market capitalization and $250 million in debt. It also has $100 million in cash and short-term investments on the balance sheet. The yield to maturity on its debt is 4%, the corporate tax rate is 35%, and the required return on its equity is 14%. What is this firm’s WACC?

2. A firm’s WACC is 19%, its required return on equity is 23%, and its after-tax cost of debt (i.e., effective cost after tax deductions) is 6%. What proportion of the firm’s capital structure is (net) debt, and what proportion is equity?


Please show work for both, thank you!

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