e. 2.5% 26. Suppose that the firm restructures the capital structure into $5 billion of equity and $3 billion of debt. What is the new cost of debt? a 1.9% b. 2.2% c. 2.5% d. 3.5% e. 5.5% (For the next two questions) Suppose an unlevered firm has equity of S4 million. The tax rate is zero. There are three states in the future: recession, normal, and boom. The distribution of the firm's EBIT is shown in the following table: Recession Normal Boom EBIT $240,000 $400,000 $800,000 Probability 1/3 1/3 1/3 27. What is the firm's return on equity (ROE) in the recession state? a. 2% b. 6% c. 10% d. 20% 28. Suppose that the firm changes the capital structure into $1 million equity and S3 million of debt, with an interest rate of 8%. We call this firm with the new capital structure as the "levered case". Which statement below is wrong? a. The equity return of the levered case has a larger total risk (standard deviation) than the unlevered case. b. The expected return of equity in the levered case is the same as the unlevered case. c. The return on equity (ROE) of the levered case is 56% in the boom state. d. The return on equity (ROE) of the levered case is 16% in the normal state