We follow MMI. This time there is risk also on debt.A firm has a debt/equity ratio of 0.6.a/ The…

We follow MMI. This time there is risk also on debt.A firm has a debt/equity ratio of 0.6.a/ The company has a 7% coupon rate, semiannual payment, $1000 par value bond that maturesin 20 years that sells at a price of $1,032.79.What is the firm’s cost of debt?b/ Based on 10 years of monthly data, you derive the following information for the company:Companysi?imFirm9.71%0.75S&P5004.9%1?im is the correlation of the stock with the market m (here the proxy for the market is SP500)Compute the beta coefficient for the stock.Assuming a risk-free rate of 2% and an expected return for the market portfolio of 10%, computethe expected required return for the stock.c/ What is the initial WACC?d/ The firm issue new bonds and increases the level of debt to get a debt/equity ratio of 1.1. Inthis case the cost of debt will be 7.3%. What is the new cost of equity?e/ What is the new WACC? Show everything on the graph assuming risk in kd.f/ Did the value of the firm change? Why?Question:The firm above is increasing its debt level.Is it a good sign or bad sign? Explain What should the firm do in term of capital structure if it a high-tech firm with great prospect?