Thunderhorse Oil. Thunderhorse Oil is a U$.$S$.$ oil company. Its current cost of debt is $7\mathrm{.}00\%,$ and the$10-$year U$.$S$.$ Treasury$$ yield, the proxy for the$$ risk$-$free rate of$$ interest, is $3\mathrm{.}50\%.$ The expected return on the market portfolio is $8\mathrm{.}40\%.$ The$$ company's effective tax rate is $39\%.$ Its optimal capital structure is $40\%$ debt and $60\%$ equity.

a$.$ If$$ Thunderhorse's beta is estimated at $1\mathrm{.}10,$ what is$$ Thunderhorse's weighted average cost of$$ capital?

b$.$ If$$ Thunderhorse's beta is estimated at $0\mathrm{.}70,$ significantly lower because of the continuing profit prospects in the global energy$$ sector, what is$$ Thunderhorse's weighted average cost of$$ capital?