the andysis.

$\backslash$table$[[$Debt Ratb,Equiry Ratio,EPS,DPS$,$Stock Price$],[30\%,70\%,1\mathrm{.}25,0\mathrm{.}55,36\mathrm{.}25],[40\%,60\%,1\mathrm{.}40,0\mathrm{.}60,37\mathrm{.}75],[50\%,50\%,160,0\mathrm{.}65,39\mathrm{.}50],[50\%,40\%,185,0\mathrm{.}75,38\mathrm{.}75],[70\%,30\%,1\mathrm{.}75,0\mathrm{.}70,38\mathrm{.}25]]$Which capital structure shown in the preceding table is Transworld Consortium Corp.$$s optimal capital structure?

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

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

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

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

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

Consider this case:

Globo$-$Chem Co$.$ currently has a capital structure consisting of $40\%$ debt and $60\%$ equity. However, Globo$-$Chem Co$.$s CFO has suggested that the firm increase its debt ratio to $50\%.$ The current risk$-$free rate is $3\mathrm{.}5\%,$ the market risk premium is $7\mathrm{.}5\%,$ and Globo$-$Chem Co$.$s beta is $1\mathrm{.}25.$

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 before$-$tax cost of debt is $6\%,$ and its tax rate is $25\%.$ It currently has a levered beta of $1\mathrm{.}25.$ The risk$-$free rate is $3\mathrm{.}5\%,$ 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 $8\%.$

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 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?

$8\mathrm{.}88\%$

$12\mathrm{.}21\%$

$11\mathrm{.}10\%$

$6\mathrm{.}66\%$