GTC Inc. currently has 40% debt and 60% equity and its levered beta is 2.8. However, the company's CEO believes that the company should use more debt. If the company increases its debt to 50%, what is the new levered beta for the company? If the risk-free rate is 4% and the market risk premium is 8%, what is the new cost of equity? The tax rate is 40%.

Answer rating: 100% (QA)

To solve this problem we need to use the Hamada equation to calculate the new levered beta and the n... View the full answer