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Review this situation: Transworid Consortium Corp, is trying to identify its optimal capital structure. Transworld Consortium Corp, has gathered the following financlal information to help

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Review this situation: Transworid Consortium Corp, is trying to identify its optimal capital structure. Transworld Consortium Corp, has gathered the following financlal information to help with the analysis. Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio =70%; equity ratio =30% Debt ratio =30%; equity ratio =70% Debt ratio =40%; equity ratio =60% Debt ratio =60%; equity ratio =40% Debt ratio =50%; equity ratio =50% Consider this case: Globo-Chem Co, currently has a capital structure consisting of 30% debt and 70% equity. However, Globo-Chem Co,'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%, the market risk premlum is 7%, and Globo-Chem Co.'s beta is 1.25. If the firm's tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same? Now consider the case of another company: US Robotics Inc. has a current capital structure of 30% debt and 70% equity, Its current beforetax cost of debt is 10%, 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 premlum on the market is 7%. 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 Inci's unlevered beta. Use US Robotics Inc.'s unlevered beta to solve for the firm's levered beta with the new capital structure. Use US Robotics Inc'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? First, solve for US Robotics Inc.'s unlevered beta. Use US Robotics Inc:'s unlevered beta to solve for the firm's levered beta with the new capital structure. Use US Robotics Inci'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? 7.50% 11.88% 8.75% 12.50%

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