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A well - known piano manufacturer wishes to expand in China. It decides that 8 0 % of the $ 3 2 million it needs

A well

-

known piano manufacturer wishes to expand in China. It decides that

80 %

of the $

32

million it needs will come from debt, and the remaining

20 %

from selling equity. The cost of debt is

7 %

and the corporate tax is

35 % .

To estimate the cost of equity, the firm uses the CAPM with these parameters:

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