please write formulas

1 2 Question 1. Information 3 Currently, Adam Loops Inc. has a capital structure consisting of 20% debt and 80% equity. Adam's debt currently has a 9.5% yield to maturity. The risk-free rate (TRF) is 6%, and the market risk premium (rM rRF) is 6%. Using the CAPM, Adam estimates that its cost of equity is currently 13.5%. The company has a 40% tax rate. 4 5 6 7 2 Marks a. What is Adam's current WACC? 8 9 b. What is the current beta on Adam's common stock? 10 2 Marks 11 12 13 3 Marks 14 c. What would Adam's unlevered beta, bU? Adam's financial staff is considering changing its capital structure to 50% debt and 50% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 11.5%. The proposed change will have no effect on the company's tax rate. d. What would be the company's new cost of equity if it adopted the proposed change in capital structure? 15 16 17 18 4 Marks 19 20 21 22 23 2 Marks 24 25 26 27 2 Marks 28 29 30 e. What would be the company's new WACC if it adopted the proposed change in capital structure? f. Based on your answer to Part e, would you advise Adam to adopt the proposed change in capital structure? Explain. 31