Problem $18-5$ WACC

Whispering Pines Incorporated is all$-$equity$-$financed. The expected rate of return on the company's shares is $14\mathrm{.}55\%.$

a$.$ What is the opportunity cost of capital for an average$-$risk Whispering Pines investment?

Note: Enter your answer as a percent rounded to $2$ decimal places.

b$.$ Suppose the company issues debt, repurchases shares, and moves to a $34\%$ debt$-$to$-$value ratio $(\frac{D}{V}=0\mathrm{.}34).$ What will be the

company's weighted$-$average cost of capital at the new capital structure? The borrowing rate is $9\mathrm{.}85\%$ and the tax rate is $21\%.$

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to $2$ decimal places.

a$.$ Opportunity cost of capital

b$.$ Weighted$-$average cost of capital

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