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Airtruck OEM was founded using all-equity financing and a cost of equity of 11%. Management decide to refinance to a capital structure with 25% debt
Airtruck OEM was founded using all-equity financing and a cost of equity of 11%. Management decide to refinance to a capital structure with 25% debt and 75% equity, with a 6% cost of debt. Use Modigliani and Millars Proposition II to calculate the cost of equity after refinancing, assuming a marginal tax rate of 35%. Calculate Airtrucks after-tax weighted average cost of capital.
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