DFW Industries is a pharmaceutical company with 10 million shares trading at $10/share. It also has $150 million of debt outstanding and borrows at the risk-free interest rate. The equity beta ofDFWis 1.50. The market risk premium is 4% and the risk-free interest rate is 8%. Assume that capital markets are perfect.

a. What is DFW's cost of the levered equity?

b. What is the weighted average cost of capital for the firm?What is the cost of equity for an otherwise identical all-equity firm?

c. What is the asset beta of the firm?What is the beta of the debt?

d. Now assume that the firm plans to borrow $50 million and use the funds to buy back outstanding shares. Suppose this will not change the risk on the debt (both new and existing). What is DFW's cost of levered equity after this transaction takes place?