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c) The average debt-to-value ratio in the pharmaceutical industry is 20%. What would GlaxoSmithKlines cost of equity be if it took on the average amount
c) The average debt-to-value ratio in the pharmaceutical industry is 20%. What would GlaxoSmithKlines cost of equity be if it took on the average amount of debt of its industry at a cost of debt of 5%? Do this calculation assuming the company does not pay taxes. (10 marks) d) Given the capital structure change in question c), according to Modigliani and Millers theory one could argue that GlaxoSmithKlines WACC should decline because its cost of equity capital has declined.
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