Currently, the Fotopoulos Corporations balance sheet is as follows:

Assets $5 billion	Debt $1 billion Common equity 4 billion
Total assets $5 billion	Total debt & common equity $5 billion

The book value of the company (both debt and common equity) equals its market value (both debt and common equity). Furthermore, the company has determined the following information:

The company estimates that its before-tax cost of debt is 9 percent.

The company estimates that its levered beta is 1.2.

The risk-free rate is 5 percent.

The market risk premium, R_M R_F, is 5 percent.

The companys tax rate is 40 percent.

In addition, the Fotopoulos Corporation is considering a recapitalization. The proposed plan is to issue $1 billion worth of debt and to use the money to repurchase $1 billion worth of common stock. As a result of this recapitalization, the firms size will not change.

1. What is Fotopoulos current WACC (before the proposed recapitalization)?

2. What is Fotopoulos current unlevered beta (before the proposed recapitalization)? Be sure that the beta you use is carried out to 4 decimal places.

3. What will be Fotopoulos new levered beta if it proceeds with the recapitalization? Be sure that the beta you use is carried out to 4 decimal places.
4. What will be the companys new cost of common equity if it proceeds with the recapitalization? (Hint: Be sure that the beta you use is carried out to 4 decimal places.)