14-5 If Company ABCs current capital structure is: 25% debt, 75% equity; risk free rate of return rRF = 5%; market premium rM rRF = 6%; tax rate T = 40%; and cost of equity rs = 14%,

Whats the Companys levered beta b?

Whats the Companys unlevered beta bu ?

If the Companys debt ratio becomes 50%, whats Companys new levered beta bL ?

Whats the Companys new cost of equity under the changed capital structure?

14-6 Company XYZ currently has zero debt, and is a zero growth company with the data shown below. If the company is planning using some debt with the debt ratio as indicated below, and the money raised would be used to repurchase stock at the current price. It is estimated that the increase in risk from the additional leverage would cause the required rate of return on equity to rise, as indicated below. If this plan were carried out, by how much would the WACC change, i.e., what is WACCOld - WACCNew?

New Debt/Assets 55% Orig. cost of equity, rs 10.0% New Equity/Assets 45% New cost of equity = rs 11.0% Interest rate new = rd 7.0% Tax rate 40%