Currently, OregonTronics has a capital structure consisting of 20% debt and 80% equity. OregonTronics debt currently has an 8% yield to maturity. The risk-free rate is 5%, and the market risk premium is 6%. Using the CAPM, OregonTronics estimates that its cost of equity is currently 12.5%. The company has a 40% tax rate.

1. What is OregonTronics current WACC? (4 pts.)

2. What is the current beta of OregonTronics stock? (2 pts.)

3. What would OregonTronics beta be if the company had no debt in its capital structure? (4 pts.)

OregonTronics financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 9.5%. The proposed change will have no effect on the company's tax rate.

4. What would be the company's new cost of equity if it adopted the proposed change in capital structure? (4 pts.)

5. What would be the company's new WACC if it adopted the proposed change in capital structure? (4 pts.)

6. Based on your answer to part E, would you advise OregonTronics to adopt the proposed change in capital structure? (2 pts.)