Question: Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost

Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of capital? In assessing the effect of leverage on the cost of capital, you may assume that a firm's CAPM beta can be modeled in the following manner: βL = U[1 + (1 − T ) D / E ], where U is the firm's beta without leverage, T is the corporate income tax rate, D is the market value of debt, and E is the market value of equity.

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