ARC Shipyards is considering a change in its capital structure. ARC currently has $20 million in debt

Question:

ARC Shipyards is considering a change in its ARC currently has $20 million in debt carrying a rate of 8%, and its stock price is $24 per share with 5.1 million shares out- standing. ARC is a zero-growth firm and pays out all of its earnings as dividends. EBIT is $21.879 million, and ARC has a 30% tax rate. The market risk premium is 4%, and the risk- free rate is 6%. ARC is considering increasing its debt level to a with 50% debt, based on market values, and repurchasing shares with the extra money that it borrows. ARC will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 9.5%. ARC has a beta of 1.4.
a. What is ARC's unlevered beta? Use market value D/S when unlevering.
b. What are ARC's new beta and if it has 50% debt?
c. What are ARC's WACC and total value of the firm with 50% debt? Capital Structure
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