Globo-Chem Co. is an all-equity firm, and it has a beta of 1. It is considering changing its capital structure to 65% equity and 35% debt. The firms cost of debt will be 8%, and it will face a tax rate of 25%.

What will Globo-Chem Co.s beta be if it decides to make this change in its capital structure?

Options: 1.47, 1.68, 1.40, 1.54

US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 8%, and its tax rate is 25%. It currently has a levered beta of 1.15. The risk-free rate is 3%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firms level of debt will cause its before-tax cost of debt to increase to 10%.

First, solve for US Robotics Inc.s unlevered beta.

Options: 0.87, 0.78, 1.04, 0.96

Use US Robotics Inc.s unlevered beta to solve for the firms levered beta with the new capital structure.

Options: 1.76, 1.67, 2.04, 1.85

Use US Robotics Inc.s levered beta under the new capital structure, to solve for its cost of equity under the new capital structure.

Options: 13.504%, 19.412%, 16,880%, 15.192%

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

11.30%

9.61%

7.91%

8.48%