Financial Ratio analysis

To answer the following questions, you will need the following two equations:

Ksl = Ksu + D/E *(1 – T)*(Ksu – Kd)

WACC = We*Ksl + Wd*Kd*(1 – T)

Please must show steps in your work. 

a.  You are trying to value No More Tears, Inc. (NMT) and need to find NMTs cost of equity. You know that NMTs industry has a cost of equity of 8%, a debt to equity ratio of 1.2, a cost of debt of 4%, and a tax rate of 25%. NMT has a debt to equity ratio of 1.75, a cost of debt of 4.5%, and a tax rate of 21%. Given this information, what is NMTs cost of equity?

b. You are trying to estimate the WACC for a company that you are valuing. You know that the industrys cost of equity is 8.5%. The industry uses 80% equity and 20% debt on average in its capital structure. The industry has a cost of debt of 5.5% and has a tax rate of 34%. Your company has a capital structure that consists of 55% equity and 45% debt. Your cost of debt is 6.2% and you have a tax rate of 40%. What is your WACC? (You have to find D/E using the given information.)

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