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Green Goose Automation Company currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The
Green Goose Automation Company currently has no debt in its capital structure, but it is considering using some debt and reducing its outstanding equity. The firms unlevered beta is and its cost of equity is Because the firm has no debt in its capital structure, its weighted cost of capital WACC also equals The riskfree rate of interest rf
is and the market risk premium rm
rf
is Green Gooses marginal tax rate is
Green Goose is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial information that follows to analyze its weighted cost of capital WACC Complete the following table.
DA Ratio
EA Ratio
BE Ratio
Bond Rating
BeforeTax Cost of Debt kd
Levered Beta beta
Cost of Equity ke
WACC
A
BBB
BB
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