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A company is currently all equity financed. It has a cost of equity of 10 per cent. The company is considering raising some debt finance

A company is currently all equity financed. It has a cost of equity of 10 per cent. The company is considering raising some debt finance by means of bank borrowings. If the company raises debt finance, the gearing ratio of the company is expected to be 60 per cent debt finance and 40 per cent equity finance in market value terms. The interest rate on the new debt is 6 per cent. Corporate tax is at a rate of 30 per cent. If Modigliani and Miller's theory with tax holds true, what will be the WACC of the company after the change in financing has taken place? Solution | B. 8.8 per cent. 0 C. 8.2 per cent. D. 5.8 per cent

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