Financing plans for a project are summarized below for Encore Productions.

(a) Plot the WACC and indicate the D-E mix with the lowest WACC.

(b) Yesterday, the president of Angkor Bank, the bank that usually makes loans to Encore, informed the CFO that interest rates on all loans will increase by 1% per year immediately due to economic instability. Encore€™s CFO does not want the WACC to exceed 9.9% for this project. Update the rates for debt capital, determine the D-E mix with the lowest WACC, and determine for this specific D-E mix the percentage debt capital that must not be exceeded to ensure that the WACC is at 9.9%. Determine this maximum limit on debt capital using Goal Seek.

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Debt Capltal Equity Capltal Plan Percentage Rate, % Percentage Rate, % 1 100 14.5 70 13.0 30 7.8 65 12.0 35 7.8 4 50 11.5 50 7.9 35 9.9 65 9.8 12.4 20 80 12.5 100 12.5