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1. (a) A given project generates 1 million of cash ows each year perpetually. The project requires a 5 million investment. The cost of unlevered
1. (a) A given project generates 1 million of cash ows each year perpetually. The project requires a 5 million investment. The cost of unlevered equity capital is 15%. The company decides to finance the project with 75% debt and 25% equity. The cost of debt capital is 5%. Calculate the cost of the levered equity.
(b) A company's equity beta is 1.4 and its debt beta is 0.2. The debt-equity ratio is 0.4. Assuming the debt beta doesn't change, which debt-equity ratio would lead to an equity beta 1.2?
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