The chairman of XYZ decides that the company should increase the proportion of debt in its capital structure. Currently the company has 12% debt in its capital structure, and an equity beta of 0.7. The debt is considered risk free and yields an expected return of 4%, whereas the stock market expected return is 12%. The market capitalization of the company is currently $360 million. The chairman of XYZ thinks that she can increase the proportion of debt to 60% in order to pay a one-time special dividend. She plans to issue debt for the amount of this dividend. Then debt would have an expected return of 6%. Assume there is no tax.

What is the debt beta?

What is the asset beta?

What is the cost of capital of the company (WACC) before the refinancing?

What is the total value of the company (D + E) before the recapitalization?

What is the amount of debt issued to pay the dividend (or, what is the amount of the dividend )?

What is the debt beta now?

What is new WACC?