You have been hired as a management consultant by JR Corporation to evaluate whether it has an appropriate amount of debt (the company is worried about a leveraged buyout). You have collected the following information on JRs current position:

There are 100,000 shares outstanding at $20/share. The stock has a beta of 1.15.

The company has $500,000 in long-term debt outstanding and is currently rated BBB. The current market interest rate is 10% on BBB bonds and 6% on treasury bonds.

The companys marginal tax rate is 40%.

Equity risk premium is 5.5%.

You proceed to collect the data on what increasing debt will do to the companys ratings:

Additional debt New rating Interest rate:

1. $500,000 BB 10.5%
2. $1,000,000 B 11.5%
3. $1,500,000 B- 13.5%
4. $2,000,000 C 15%

How much additional debt should the company take on assuming that the cash from new debt would not be used to buyback shares but to invest in projects with similar risk as the rest of the firm?

Please show calculation how to get the After-tax Cost of debt, beta, Cost of equity and calculation for WACC for each scenario. Make sure to calculate unlevered beta and the the cost of capital at different levels of debt provided in the problem. Need clarification on how to solve this problem. Will give positive rating if solve correctly. Thank you.