Zonk Corp.

The following data pertains to Zonk Corp., a manufacturer of ball bearings $($dollar amounts in millions$)$:

Total assets

Interest$-$bearing debt

Average pre$-$tax borrowing cost

Common equity:

Book value

Market value

Income tax rate

Market equity beta

$$7,460$

$$3,652$

$10\mathrm{.}5\%$

$$2,950$

$$13,685$

$35\%$

$1\mathrm{.}10$

Assume that Zonk is a potential leveraged buyout candidate. Assume that the buyer intends to put in place a capital structure that has $80$ percent debt with a

pretax borrowing cost of $14$ percent and $20$ percent common equity. Compute the revised equity beta for Zonk based on the new capital structure.

a$.9\mathrm{.}10$

b$.6\mathrm{.}60$

c$.7\mathrm{.}26$

d$.7\mathrm{.}70$