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4. Determining the optimal capital structure Understanding the optimal capital structure Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc. has gathered the following financial information to help with the analysis. Debt Ratio 30% Equity Ratio 70% 40% 60% s 7.00% 7.20% 7.70% 8.90% 10.30% WACC 8.61% 8.21% 8.01% 8.08% 8.38% 10.50% 10.80% 11.40% 12.20% 13.50% 50% 50% 40% 30% 60% 70% tal structure shown in the preceding table is Universal Exports Inc.'optimal capital structure? consider this case: Globex Corp. has a capital structure that consists of 40% debt and 60% equity. The firm's current betais 1.25, but management want to understand Globex Corp.'s market risk without the effect of leverage. If Globex Corp. has a 25% tax rate, what is its unlevered beta? US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 6%, and its tax rate is 25%. It currently has a levered beta of 1.25. The risk-free rate is 3.5%, 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 firm's level of debt will cause its before cost of debt to increase to 8%. First, solve for US Robotics Inc.'s unlevered beta. 0.95 Use US Robotics Inc.'s unlevered beta to solve for the firm's levered beta with the new capital structure. 2.02 Use US Robotics Inc.'s levered beta under the new capital structure, to solve for its cost of equity under the new capital structure. 18.650 What will the firm's weighted average cost of capital (WACC) be if it makes this change in its capital structure? 15 6.66% 12.21% A he int 8.88% RE 11.10% SH