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Right now, PP Co. has a capital structure that consists of 20 percent debt and 80 percent equity, based on market values. The risk-free rate is 6 percent and the market risk premium is 5 percent. The company can borrow at risk-free rate. Currently the company's cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. What would be PP Co's weighted average cost of capital if it were to change its capital structure to 50 percent debt and 50 percent equity? 7.41% 7.8% 8.98% 7.65% 8.35% Star, Inc, a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 20 percent debt. Currently there are 3,000 shares outstanding and the price per share is S40. EBIT is expected to remain at $24,000 per year forever. The interest rate on new debt is 8 percent, and there are no taxes. Ms. Brown, a shareholder of the firm, owns 100 shares of stock. What is her rate of return under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? 20% 20.25% 5% 18.75% 100%