Capital Structure. For this and the next 2 questions: Zilord Furniture Company (ZFC) currently has $50 million of debt at 10% interest rate. Its stock is selling for $25 per share, and there are 3 million shares outstanding. The firm’s net operating income is expected to remain flat for the foreseeable future with EBIT at $31 million. Tax rate is 40%, expected market return is 11%, risk free interest rate is 6%. ZFC is considering raising its debt ratio to 45% (based on market values) and buying back some shares with the extra borrowed funds. Interest rate on the new debt will be 12%. ZFC’s beta is currently 1.5. Calculate ZFC’s new beta (levered beta) given the projected 45% debt ratio. Be sure to use stored values
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