Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the

following financial information to help with the analysis.

Which capital structure shown in the preceding table is Transworld Consortium Corp.$\text{'}$s optimal capital structure?

Debt ratio $=40\%$; equity ratio $=60\%$

Debt ratio $=70\%$; equity ratio $=30\%$

Debt ratio $=50\%$; equity ratio $=50\%$

Debt ratio $=30\%$; equity ratio $=70\%$

Debt ratio $=60\%$; equity ratio $=40\%$

Consider this case:

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 firm's cost of debt will be $8\%,$ and it will face a tax rate of $25\%.$

What will Globo$-$Chem Co$.\text{'}$s beta be if it decides to make this change in its capital structure?

Now consider the case of another company:

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 $1\mathrm{.}10.$ The risk$-$free rate is $3\%,$ and the risk premium on the market is $7\mathrm{.}5\%.$ 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$-$tax cost

of debt to increase to $10\%.$

First, solve for US Robotics Inc.$\text{'}$s unlevered beta.

Use US Robotics Inc.$\text{'}$s unlevered beta to solve for the firm's levered beta with the new capital structure.

Use US Robotics Inc.$\text{'}$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?

$7\mathrm{.}70\%$

$6\mathrm{.}60\%$

$9\mathrm{.}35\%$

$11\mathrm{.}00\%$