The 2008 financial crisis, also known as the Great Recession, was a severe worldwide economic crisis that occurred in the late 2000s. It was the most serious financial crisis since the Great Depression (1929). Predominantly, it was caused by a burst in the United States housing bubble, leading to mortgage-backed securities (MBS) tied to American real estate, as well as a vast number of financial derivatives linked to those MBS, collapsing in value. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis.

ColadaPina Real Estate Inc. is a U.S.-based real estate company that develops residential and commercial properties. In operation since 2000, the company faced a major hurdle during the 2008 financial crisis, which resulted in tightened lending standards, a fall in property values, and a decrease in potential buyers affecting its sales and cash flow.

Prior to the crisis, ColadaPina relied on a mix of equity and debt to finance its operations and projects. It had a Debt to Equity (D/E) ratio of 1.2 and a beta of 1.3. The risk-free rate was 3.5%, and the expected market return was 10%. However, the crisis led to the company's bank increasing interest rates on their loans.

Questions

a. Given the financial crisis and its effect on the lending rates, how would ColadaPina's Weighted Average Cost of Capital (WACC) be affected?

b. Using the Capital Asset Pricing Model (CAPM), calculate the cost of equity for ColadaPina given its beta of 1.3, risk-free rate of 3.5%, and expected market return of 10%. How would the financial crisis affect this cost of equity?

c. In light of the financial crisis, how might ColadaPina's capital structure and Debt to Equity ratio change if the company decides to reduce its reliance on debt financing? What implications would this have on the firm's risk profile and cost of capital?

d. Considering the increased risk during the financial crisis, how might investors' required rate of return change and how would this impact ColadaPina's equity raising efforts?

e. What strategic measures can ColadaPina take to mitigate the impact of the financial crisis on its cost of capital and to reassure its investors?