ABC Corp. is all-equity financed and expects zero growth. The expected EBIT = $600,000, Tax rate = 40%, 100,000 shares outstanding. If the company recapitalizes, debt would be issued to repurchase stock.

Debt Percent (Wd)Equity Percent (We)Before-tax cost of debt (rd)

0.300.709%

The company uses the CAPM to estimate its cost of common equity. The risk-free rate is4 percent and the market risk premium is 6 percent. Its "unlevered beta," bU, equals 1.2.What is the levered beta at 30% debt?

a.1.51

b.1.53

c.1.55

d.1.49

e.1.47