Question $1$: $10$ marks

Summer$-$Seas Limited operates out $of$ Miami Florida USA. Its current earnings

before interest and tax are $$950,000.$ Earnings are projected $to$ remain constant

over the foreseeable future. Summer$-$Seas currently has $no$ debt, but $ifit$

choose $to$ borrow, its cost $of$ borrowing would $be$ seven percent.

Summer$-$Seas has $an$ unlevered cost $of11$ percent, while its tax rate $is20$

percent.

$If$ Summer$-$Seas adds leverage $to$ the company $by$ borrowing $$350,000,$ what will

$be$ its WACC $be$ after recapitalization? Kindly show all workings and formulae

used.