Assume that a firm has no debt. The market changes in equity closely mirror the market as a whole (i.e., the firm has a beta of 1.00). What is the equity beta of the firm given the following debt-to-equity assumptions assuming a 21% tax rate?

e) What does this tell you about the relationship between the capital structure of firms and risk to the shareholders? f) How does the debt-to-equity ratio affect the required rate of return for shareholders (i.e. how does the firms expected cost of equity change with leverage)?