Gator Fabrics Inc. currently has zero debt. It is a zero growth company, and it has the

Question:

Gator Fabrics Inc. currently has zero debt. It is a zero growth company, and it has the data shown below. Now the company is considering using some debt, moving to the new debt/assets ratio indicated below. The money raised would be used to repurchase stock at the current price. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, by how much would the WACC change, i.e., what is WACC - WACC?
New Debt/Assets 35% Original rs 10.0%
New Equity/Assets 65% New = rs 11.0%
Interest rate new = rd 7.0% Tax rate
Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...