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Answer the following questions about capital structure choices. The following table gives the details of a balance sheet of a company. a. The cost of
Answer the following questions about capital structure choices. The following table gives the details of a balance sheet of a company. a. The cost of debt capital is 5% and the cost of equity capital is 12%. What is the weighted average cost of capital of the firm? (10 marks) b. Suppose the firm increases its borrowing by 50,000 to 200,000, and uses the proceeds from the debt issue to repurchase 50,000 worth of equity. With the additional borrowing, the cost of debt increases to 5.5%. With the additional borrowing, the cost of debt increases to 5.5%. What is the cost of equity capital for the firm now? Assume the firm pays no taxes or incurs deadweight bankruptcy costs in default
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