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Weighted average cost of capital American Exploralioe, Inc, a natural gas prodveer, it trying to decdo whether to revise at targot copital structure. Curnonfly it targots a So-50 mki of debt and equity, but it is considering a targot capital structare with 90% debt. Americas Exploration curtenty has 6% atter-tac cost of dobt and a 12% cont of comnen stock. The company does not han any prefered stock outstanding a. What is American Explarationis cument WACC? b. Assuming that its cost of debt and equaly remain unchanged, What will be Americen Explorations WACC under fte rovised targel capital structuro? e. Do you thirk thareholden are aflocted by the inoreate in debt to gow? If so, how are they afiected? Are the common stock cioimis rakier now? d. Suppote that in rosponse to the increase in debt, Amrerican Explorationis sharobolders increase their required retum so that cost of common aquaty as 16\% What wil is nea Wacc be in thit case? a. What does your answer in part d wggest about the tradeot between finanoing with debt versus equby? a. Ameican Exploretion's current WACo under the 5050 max of dotet ind equity is 4. (Round to tao decimal places) decimal ploses.) c. Do you think thaccholden are affected by the increase in debt to 90\%? it wo, how are they aflected? (Select the best answer below) A. Yes, their cormon stock elaims ace niskier now becavoe larger iweieat expenses must be paid priar to ary divand poyment 8. Yes, shecoholders boneti from the increase of debt finanoing because the interev expenes paid b bordiciden are tax exempt. C. No, only bondholders are atfected because there is a greater chance that the fem may not be abie fo make the interost poyments. D. No, thareholders have the nght to increase thei required raie of rotum, which in turn may losec the fiemit risk of bankruptcy. tho decimal plases) 0. What doee your answe in part d sugpet aboul the badeoll between financing with dete veris equity? (Sseieci foge the drog-down merus ) Incrasaing the percentage of bebi financing Which na sas the cost of equify eaphal

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