Problem:
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 35%. It currently has a levered beta of 1.10. the risk free are is 2.5% and the risk premium on the market is 8%. U.s. Robotics Inc. is considering changing its capital structue to 60% debt and 40% equity. Inceasing the firms level of debt will cause its before tax cost of debt to increase to 12%.
Task:
Question 1: What is Robotics unlevered beta?
Question 2: Reiever U.S. Robotics beta using the firm's new captial structure.
Question 3: Use Robotics levered beta under the new capital structure to solve for its cost of equity under the new capital struature.
Question 4: What will the firms WACC be if it makes the changes in the capital structure?
Note: Please describe comprehensively and provide step by step solution.