3. 3. El Capitan Foods has a capital structure of 40% debt and 60% equity, its tax rate is 30%, and its beta (leveraged) is 1.20. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta? a. 0.71 b. 0.75 c. 0.82 d. 0.85 e. 0.87 4. Gator Fabrics Inc. currently has zero debt. It is a zero growth company, and it has the data shown below. Now the company is considering using some debt, moving to the new debt/assets ratio indicated below. The money raised would be used to repurchase stock at the current price. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, by how much would the WACC change, i.e., what is WACCoid - WACCNew ? New Debt/Assets New Equity/Assets Interest rate new = rd 55% 45% 5.0% Orig. cost of equity, rs New cost of equity = rs Tax rate 10.0% 12.0% 35% a. 2.10% b. 2.29% c. 2.81% d. 3.15% e. 3.66%