Question: Serendipity Inc. is re-evaluating its debt level. Its current capital structure consists of 100% common equity, its beta is 0.40, and its tax rate is

Serendipity Inc. is re-evaluating its debt level. Its current capital structure

Serendipity Inc. is re-evaluating its debt level. Its current capital structure consists of 100% common equity, its beta is 0.40, and its tax rate is 25%. However, the CFO thinks the company could have more debt, and he is considering moving to a capital structure with 50% debt and 50% equity. The risk-free rate is 5.0% and the market risk premium is 6.0%. By how much would the capital structure shift change the firm's cost of equity? (Hint: find levered beta first) a) .1,40% Ob) 1.80% OC) -2.20% d) 6.00%

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