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Assume a world with no taxes, no transaction costs, and no costs of financial distress. Does moderate borrowing increase the required return on a firms
Assume a world with no taxes, no transaction costs, and no costs of financial distress. Does moderate borrowing increase the required return on a firms equity ()? Does it necessarily follow that increases in debt increase the business risk of the firm? How will it affect the asset beta ()? Explain your arguments.
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