4. (8 points) Texas Resources Ltd. is an all-equity financed firm. Covariance of Texas Resources share with market is 0.0151 and the standard deviation of market is 14.5%. The risk-free rate is 3.5%. Market premium is equal to 7%. The corporate tax rate is 35%. The company considers issuing debt and using the proceedings to repurchase shares. Table below provides information on projected credit spreads for different levels of leverage. What should be the optimal level of leverage for Texas Resources Ltd.? Explain and show your calculations! 3 Leverage (2) 0.2 0.4 0.5 0.65 0.8 Credit spread over risk-free rate (%) 0.95 1.2 1.45 3.02 4.04