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A firm has a debt to equity ratio of 2/3. Its cost of equity is 15.2%, cost of debt is 4%, and tax rate is
A firm has a debt to equity ratio of 2/3. Its cost of equity is 15.2%, cost of debt is 4%, and tax rate is 35%. Assume that the risk-free rate is 4%, and market risk premium is 8%.
Suppose the firm repurchases stock and finances the repurchase with debt, causing its debt to equity ratio to change to 3/2:
- What is the firms WACC before and after the change in capital structure?
- Compute the firms new equity beta and new cost of equity?
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