QUESTION $7$

General Chemicals is unlevered and has a cost of equity of $8\%.($The riskfree rate is $5\%$ and the market risk premium is $4\%.),$ Their tax rate is $40\%.$

The management decides to increase its debt to equity ratio from $0\%$ to $25\%.$

If the pre$-$tax cost of borrowing is $6\%,$ estimate the WACC of the firm after the restructuring. $($ Find the new leveraged beta for equity and the new cost of equity. Then use the new cost of equity and debt to find WACC$)$

$8\mathrm{.}625\%8\mathrm{.}45\%7\mathrm{.}48\%8\mathrm{.}0\%$