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A firm has $100 million in debt, $200 million in equity, and an effective tax rate of 40%. a. If the cost of equity is
A firm has $100 million in debt, $200 million in equity, and an effective tax rate of 40%.
a. If the cost of equity is 10% and the after-tax cost of debt is 5%, what is the firms cost of capital?
b. If the cost of equity is 10% and the pre-tax (or nominal) cost of debt is 5%, what is the firms cost of capital?
c. If the firms cost of capital is 8% and the after-tax cost of debt is 5%, what is the firms cost of equity?
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