US Robotics Inc. has a current capital structure of $30\%$ debt and $70\%$ equity. Its current before$-$tax cost of debt is $10\%,$ and its tax rate is $25\%.$ It currently has a levered beta of $1\mathrm{.}10.$ The risk$-$free rate is $2\mathrm{.}5\%,$ 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 $12\%.$

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?

$8\mathrm{.}19\%$

$11\mathrm{.}70\%$

$11\mathrm{.}11\%$

$7\mathrm{.}02\%$