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In this question,the market risk premium is 6% and the risk free rate is 3%. You are interested in Proctor Inc., a firm currently all equity financed that can borrow as much as it wants at the 3% risk free rate. Due to a clever legal structure, Proctor does not pay any taxes. The company's current beta is 1.5. The management team is considering issuing some debt and wonders what effect this decision would have on the company's WACC. If they decide to modify the company's capital structure so that it has 20% debt, what will be Proctors' WACC, rounded to 2 decimal places? The firm's cost of equity is 12%.

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