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A business has a tax rate of 21%, a beta of 1.25, and it uses no debt. However, the CFO is considering moving to a

A business has a tax rate of 21%, a beta of 1.25, and it uses no debt. However, the CFO is considering moving to a capital structure with 25% debt and 75% equity. If the risk-free rate is 3.0% and the market risk premium is 10.0%, by how much would the capital structure shift change the firm's cost of equity?

3.29%

4.28%

0%

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