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Blue Lagoon Ltd is an unlevered firm with a cost of equity of 4 % and a tax rate of 3 5 % . Required:
Blue Lagoon Ltd is an unlevered firm with a cost of equity of and a tax rate of
Required:
i Using Modigliani and Miller's theory with corporate taxes but no bankruptcy costs calculate the cost of equity of a levered firm in the same tax bracket that pays interest at and has a debt to equity ratio of
ii Explain with calculations what would happen to the cost of equity of the levered firm if the debt to equity ratio was reduced to
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