ABC is now considering changing the debt ratio and moving it to the new debt/assets ratio as indicated below, and replacing all preferred stocks with debt. The money raised would be used to repurchase preferred 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,

Old WACC = 9.58%

1. By how much would the WACC change, i.e., what is WACC_Old - WACC_New (WACC (in question (1) or (2)) WACC (in question (3))?

New Debt/Assets 60% Interest rate new = r_d 6.0%

New Equity/Assets 40% New cost of equity = r_s 15.0%

2. Based on the Hamada equation, what would the firm's beta be if it used no debt, i.e., what is its unlevered beta?