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A firm has a beta 0f 1.45and a D/E ratio of .45. Their effective tax rate is 23%. They are exploring a new debt raise
A firm has a beta 0f 1.45and a D/E ratio of .45. Their effective tax rate is 23%. They are exploring a new debt raise and stock repurchase that would modify their capital structure significantly. Their new proposed D/E ratio would be .65.
a. What would be their new beta?
b. Do you have enough information todetermine if their cost of capital would decrease through this action, if not, what would you need to know?
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