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Beanie Baby Inc. has a cost of equity of 12% and no debt. Its market value of equity is $18,000. The company is now borrowing

Beanie Baby Inc. has a cost of equity of 12% and no debt. Its market value of equity is $18,000. The company is now borrowing $22,000 at an interest rate of 8%. Assume there are no taxes or costs of financial distress.

Part 1: What is the new cost of equity?

Part 2: What is the new cost of equity if the company borrows to the point where its debt-equity ratio is 1.722?

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