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Ated Technology plans to borrow $20 million from the bank. The new loan is borrowed with a 4% after-tax cost of debt, which is the
Ated Technology plans to borrow $20 million from the bank. The new loan is borrowed with a 4% after-tax cost of debt, which is the same rate as Ated's prior loans. The addition of the new loan changes Ated's debt/equity ratio from 50% to 70%.
Assuming Ated's weighted cost of capital stays the same at 10% before and after the loan, determine the change in Ated's cost of equity after the new loan.
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