Find what is Thunderhorse weight average cost of capital

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Thunderhorse Oil is a U.S. oil company. Its current cost of debt is 7.10%, and the 10-year U.S. Treasury yield, the proxy for the risk-free rate of interest, is 3.80%. The expected return on the market portfolio is 8.60%. The company's effective tax rate is 30%. Its optimal capital structure is 35% debt and 65% equity.

Problem 1: If Thunderhorse's beta is estimated at 1.10, what is Thunderhorse's weighted average cost of capital?

Problem 2: If Thunderhorse's beta is estimated at 0.70, significantly lower because of the continuing profit prospects in the global energy sector, what is Thunderhorse's weight d average cost of capital?

Reference no: EM132773002

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