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1.      Ignore taxes and financial distress for this question. Suppose that your firm has a debt-equity ratio of 0.75, a cost of debt of 8.5%, and an unlevered cost of equity of 15%.

a.     What is your firm's cost of equity and WACC?

b.     If you decrease your D/E ratio to 0.50, what would your cost of equity and WACC be? Assume that your cost of debt stays at 8.5%, regardless of your debt burden.