6. (5 points) In t = 0, SpaceY Inc. is an unlevered company whose Beta is 2. The risk free-rate in the economy is 5%, and the market return is 10%. To begin with, assume that capital markets are perfect and Modigliani-Miller (MM) assumptions hold true. (a) Determine the required cost of equity using CAPM. (b) Given your answer in part (a), suppose that in t = 1 Spacey does a leveraged recapitalization, issuing risky debt and repurchasing stocks until its debt-equity ratio is 1. The rate of return on debt is 5%. i. Will the Beta of Space Y rise after the recapitalization? Ex- plain why in max 2 lines. ii. Do you have enough information to compute the value of Beta of Space Y's equity? Explain why. (c) What is the cost of equity of the levered firm? Briefly discuss your answer (max 2 lines). (d) Compute the WACC of the levered firm. (e) In t= 2, the government reforms the bankruptcy system, mak- ing default costly. Does the value of the company increase with respect to what happens when MM assumptions are satisfied? Ex- plain why