Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million of debt at a pre-tax rate of 8%, and 2 million shares of stock at a current market price of $40 per share, giving it a capital structure of 20% debt and 80% equity. BEA is a zero-growth firm that pays out all of its earnings as dividends (For such firms, FCF = EBIT(1-T) because growth=0%, causing net investment=0). BEAs current EBIT is $14.933 million, and its tax rate is 40%. The market or equity risk premium is 4%, and the risk free rate is 6%.

BEA is considering increasing its debt to 60% of its capital structure, based on market values. If BEA changes its capital structure, then the extra debt will be used to repurchase stock. Also, if BEAs capital structure is changed, then BEA will face a pre-tax rate of 9.5% on all of its debt. BEAs levered beta under its current capital structure is 1.00.

Compute BEAs cost of equity, wacc, and firm value under its current capital structure.

Compute BEAs unlevered beta.

Compute BEAs levered beta and cost of equity for its proposed capital structure.

Compute BEAs wacc and firm value under its proposed capital structure.