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ABC Corporation has an unlevered cost of equity of 13%. Their debt to equity ratio is 0.25, their corporate tax rate is 33%, and
ABC Corporation has an unlevered cost of equity of 13%. Their debt to equity ratio is 0.25, their corporate tax rate is 33%, and their cost of debt is 5.5%. What is their levered cost of equity according to Modigliani-Miller? According to the tradeoff theory of capital structure, would this estimate likely be too high, too low, or correct? Why?
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Valuation The Art and Science of Corporate Investment Decisions
Authors: Sheridan Titman, John D. Martin
3rd edition
133479528, 978-0133479522
