2. Happy Valet, Inc. has a 14.5% cost of unlevered equity and can issue debt at a rate of 8%. It faces marginal corporate income tax rate of 40% and has debt and equity assets of 30% and 70%, respectively (calculated using market values).
a. What rate of return do stockholders require on Happy Valet’s levered equity assets?
i. 10.15% or 16.17%
b. What is the firm’s WACC?
i. 11.59% or 12.76%