River valley beverages company has the interest-bearing debt: short term loan $ 100,000 @ 12% interest and long term debt $150,000 @ 15% and common equity capital of $ 800,000 @ 18% cost of capital. This company is in the 30 percent average tax bracket.
You are required to i) Calculate the after-tax (WACC) for River valley beverages company and ii) Show how River valley beverages company, WACC would change if the tax rate drops to 26 percent and the estimated cost of equity capital is based on a risk-free rate of 8 percent, a market risk premium of 9 percent, and a systematic risk measure or beta of 2.5 (4 marks).