Question 1: Given that the traction corporation has a 40% debt, 60% equity capital structure and its WACC is 9.96%, find the required rate of return on equity. It is mentioned that the cost of debt before tax equals 9%, the tax rate is 40%.
- 11.06%
- 13%
- 14.89%
- 8%
- The information given is not sufficient to answer the question.
Question 2: What effect will an increase in tax rate for a company have on the WACC? Assume that everything else remains the same.
- It will reduce the WACC
- It will increase the WACC
- It will have absolutely no effect
- It will first increase WACC, then decrease it.