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Cede & Co. expects its EBIT to be $91,000 every year forever. The company can borrow at 7%. The company currently has no debt and

Cede & Co. expects its EBIT to be $91,000 every year forever. The company can borrow at 7%. The company currently has no debt and its cost of equity is 12% and the tax rate is 22%. The company borrows $150,000 and uses the proceeds to repurchase shares.

a. What is the cost of equity after recapitalization?

b. What is the WACC?

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