c) A firm has the following capital structure: 100 million shares outstanding, trading at 1.5 per share, and 100 million of debt. The beta of the firms stock is 1.5. The firms cost of equity is 10 percent, and the yield on riskless bonds is 2.5 percent. There is no tax. Assuming that the firm can borrow at the risk free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the following questions.

iv) Suppose the firm changes its capital structure so that its debt increases to 150 million, and the equity decreases by 50 million. What should be the firms cost of equity after the change?

*Different question*

c) A firm has the following capital structure: 100 million of equity (market value) with 100 million shares outstanding, and 100 million of debt. The beta of the firms stock is 1.6. The firms cost of equity is 10 percent, and the yield on riskless bonds is 2 percent. There is no tax. Assuming that the firm can borrow at the risk free rate and that both CAPM (Capital Asset Pricing Model) and the Modigliani-Miller theorem hold, answer the following questions

iv) Suppose the firm changes its capital structure so that its debt increases to 140 million, and the equity decreases to 60 million. What should be the firms cost of equity after the change?