Question: S ao Paolo Foods introduced in Question 1 is considering a

S˜ao Paolo Foods (introduced in Question 1) is considering a leveraged recapitalization of the company. Upon announcement, management expects the share price to rise by 10 percent. If the company raises R$200 million in new debt to repurchase shares, how many shares can the company repurchase? Assuming management will actively manage to the new capital structure, estimate the company's new market beta. If the company's cost of
debt rises to 100 basis points above the Brazilian risk-free rate, what will its new cost of capital equal?

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