Thunder horse Oil is a U.S. oil company. Its current cost of debt is 6.90%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.60%. The expected return on the market portfolio is 8.30%. The company's effective tax rate is 40%. Its optimal capital structure is 55% debt and 45% equity.

a). If Thunder horse's beta is estimated at 1.20, what is Thunder horse's weighted average cost of capital? (Round to two decimal places.)
b). If Thunder horse's beta is estimated at 0.90, significantly lower because of the continuing profit prospects in the global energy sector, what is Thunder horse's weighted average cost of capital? (Round to two decimal places.)

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a If Thunder horse s beta is estimated at 1 20 what is Thunder horse s weighted average cost of capi... View the full answer