American exploration, inc., a natural gas producer, is trying to decide whether to revise its target capital structure. currently it targets a 50-50 mix of debt and equity, but it is considering a target capital structure with 70% debt. american exploration currently has 6% after-tax cost of debt and a 12% cost of common stock. the company does not have any preferred stock outstanding.

a. what is american exploration's current wacc?
b. assuming that its cost of debt and equity remain unchanged, what will be american exploration's wacc under the revised target capital structure?
c. do you think shareholders are affected by the increase in debt to 70%? if so, how are they affected? are the common stock claims riskier now?
d. suppose that in response to the increase in debt, american exploration's shareholders increase their required return so that cost of common equity is 16%. what will its new wacc be in this case?
e. what does your answer in part d suggest about the tradeoff between financing with debt versus equity?

8. agreement and disagreement among economists suppose that bob, an economist from a university in arizona, and cho, an economist from a public television program, are arguing over saving incentives. the following dialogue shows an excerpt from their debate: cho: i think it's safe to say that, in general, the savings rate of households in today's economy is much lower than it really needs to be to sustain an improvement in living standards. bob: i think a switch from the income tax to a consumption tax would bring growth in living standards. cho: you really think households would change their saving behavior enough in response to this to make a difference? because i don't. the disagreement between these economists is most likely due to . despite their differences, with which proposition are two economists chosen at random most likely to agree? rent ceilings reduce the quantity and quality of available housing. immigrants receive more in government benefits than they contribute in taxes. having a single income tax rate would improve economic performance.

Suppose jamal purchases a pair of running shoes online for $60. if his state has a sales tax on clothing of 6 percent, how much is he required to pay in state sales tax?

Many potential buyers value high-quality used cars at the full-information market price of € p1 and lemons at € p2. a limited number of potential sellers value high-quality cars at € v1 ≤ p1 and lemons at € v2 ≤ p2. everyone is risk neutral. the share of lemons among all the used cars that might be potentially sold is € θ . suppose that the buyers incur a transaction cost of $200 to purchase a car. this transaction cost is the value of their time to find a car. what is the equilibrium? is it possible that no cars are sold