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ABC Ltd is currently an all-equity financing firm. It has a beta of 1.0 and its cost of equity is 12%. The stock price is
ABC Ltd is currently an all-equity financing firm. It has a beta of 1.0 and its cost of equity is 12%. The stock price is $25 per share. It is expected to generate a level of perpetual earnings indefinitely. The firm is considering to issue $10-million bonds to repurchase an equal value of common shares. Its corporate bond is riskless and the required return rate of the bond is indexed by the T-bill rate 5%. The firm is exempted from the corporate taxes. Based on the MM theory, compute the following items after the firm's capital restructure occurs. a) The cost of equity b) The overall cost of capital The stock price per share d) The stock's beta (5 points) (5 points) (5 points) (5 points)
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