1. Jimin Corporation currently uses no debt, but its new CFO is considering changing the capital structure to 20.0% debt (wd) by issuing bonds and using the proceeds to repurchase and retire common shares so the percentage of common equity in the capital structure (wc) = 1 wd. Given the data shown below, by how much would this recapitalization change the firm's cost of equity, i.e., what is rL rU? (Multiple Choice)

Risk-free rate, rRF: 2.80% Tax rate, T: 19% Market risk premium, RPM: 8.90% Current beta, bU: 1.15 Current wd: 0% Target wd: 20%

	3.07%
	4.07%
	1.41%
	1.21%
	2.07%

2. Scanton Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 0.80. Based on the CAPM approach, what is the cost of equity? (Multiple Choice)

	9.25%
	7.00%
	5.02%
	7.78%
	8.30%