Globex Corp. is an all$-$equity firm, and it has a beta of $1.$ It is considering changing its capital structure to $70\%$ equity and $30\%$ debt.

The firm's cost of debt will be $10\%,$ and it will face a tax rate of $25\%.$

What will Globex Corp.$\text{'}$s beta be if it decides to make this change in its capital structure? $1\mathrm{.}32$

Now consider the case of another company:

US Robotics Inc. has a current capital structure of $30\%$ debt and $70\%$ equity. Its current before$-$tax cost of debt is $10\%,$ and its tax rate

is $25\%.$ It currently has a levered beta of $1\mathrm{.}10.$ The risk$-$free rate is $3\%,$ and the risk premium on the market is $8\%.$ US Robotics Inc. is

considering changing its capital structure to $60\%$ debt and $40\%$ equity. Increasing the firm's level of debt will cause its before$-$tax cost

of debt to increase to $12\%.$

First, solve for US Robotics Inc.$\text{'}$s unlevered beta. $0\mathrm{.}83$

Use US Robotics Inc.$\text{'}$s unlevered beta to solve for the firm's levered beta with the new capital structure.

Use US Robotics Inc.$\text{'}$s levered beta under the new capital structure, to solve for its cost of equity under the new capital structure.

What will the firm's weighted average cost of capital $($WACC$)$ be if it makes this change in its capital structure?

$10\mathrm{.}37\%$

$13\mathrm{.}42\%$

$12\mathrm{.}20\%$

$7\mathrm{.}93\%$