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. Debt Ratio 30% 40% 50% 60% 70% Equity Ratio EPS DPS 1.25 0.55 1.40 0.60 1.60 0.65 1.85 0.75 1.75 0.70 70% 60% 50% 40% 30% Consider this case: Debt ratio = 40%; equity ratio = 60% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio = 30%; equity ratio = 70% Debt ratio= 70%; equity ratio = 30% Debt ratio = 50%; equity ratio = 50% Debt ratio = 60%; equity ratio = 40% Stock Price 36.25 37.75 39.50 38.75 38.25 Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%, the market risk premium is 7%, and Globex Corp.'s beta is 1.10. Now consider the case of another company: wete 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? First, solve for US Robotics Inc.'s 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 1.10. The risk-free rate is 3.5%, and the risk premium 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 8%.

Review this sifuation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Corsortum Corp. has pamered th following financal information to help whth the analysis: Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio =40%; equity ratio =60% Debt ratio =30%; equity ratio =70% Debt ratio =70%; equity ratio =30% Debt ratio 50%; equity ratio 50% Debt ratio =60%; equity ratio =40% Consider this case: Globex Corp, currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.x CFo has suggeated that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%, the market risk premium is 7%, and Gobex Corp $ beta is 1.10. If the firm's tax rate is 25%, what will be the beta of an all-equity firm if its operations wife exactly the same? Now consider the case of another company: US Robotics Inc, has a current copital sthucture of 30% debt and 70% equily, Its current before-tax cost of debe is 6%, and its tax rate is 25%, It currently has a levered beta of 1.10 . The risk-free rate is 3.5%, and the risk premilu on the markec is 7%. US Robeties lnc. is considering changing its capital structure to 60% debt and 40 W equity, Increasing the firm's level of debt will cause its before-tax cont of debt to increase to 8%. First, solve for us Robotics Inci's unlevered beta. Consider this case: Globex Corp, currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.'s CFo has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%, the market risk premium is 7%, and Globex Corp.'s beta is 1.10 . 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 before-tax cost of debt is 6%, and its tax rate is 25%, It currently has a levered beta of 1.10 . The risk-free rate is 3.5%, and the risk premium 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 8%. First, solve for US Robotics Inc:'s unlevered beta. Use US Robotics Incis 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? 10.89% 6.93% 7.43% 9.90%