Kodiak Corp currently has $60,000,000 in equity. Using market values, the debt-equity ratio is 1.5. The current levered equity has a beta of 1.40 and debt is risk-free (beta of 0). The firm plans to issue $65,000,000 in equity to pay off existing debt. Assume the risk-free rate is 4% and the return on the market is 12%.

a. Find the unlevered beta.

b. Is risk-free debt a reasonable assumption here? Explain.

c. What will happen to the levered equity beta and the cost of levered equity after the capital structure change?