(9) Consider this case:

Globo-Chem Co. has a capital structure that consists of 35% debt and 65% equity. The firm's current beta is 1.15, but management wants to understand Globo-Chem Co.'s market risk without the effect of leverage.

If Globo-Chem Co. has a 35% tax rate, what is its unlevered beta?

0.85

1.02

0.89

0.98

Now consider the case of another company:

U.S. Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 8%, and its tax rate is 35%. It currently has a levered beta of 1.15. The risk-free rate is 3.5%, and the risk premium on the market is 7.5%.

U.S. Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm's level of debt will cause its before-tax cost of debt to increase to 10%. Use the Hamada equation to unlever and relever the beta for the new level of debt.

What will the firm's weighted average cost of capital (WACC) be if it makes this change in its capital structure? (Hint: Do not round intermediate calculations.)