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ABC Inc. is currently an all-equity firm with an asset beta of 0.25. The market risk premium is 5.7% and the risk-free rate is 1.7%.

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ABC Inc. is currently an all-equity firm with an asset beta of 0.25. The market risk premium is 5.7% and the risk-free rate is 1.7%. ABC Inc. is planning to change issue new debt and uses the proceeds to repurchase equity. After restructuring, it will have 55% debt. Assume the cost of debt is equal to the risk-free rate and ABC Inc. does not pay any corporate debt, what is its weighted average cost of capital (WACC) after restructuring? 3.125% 4.87% 7.4% 1.7%

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