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Liquid Corporation is financed with $25 million of risk-free debt and $50 million of ordinary shares, which have an equity beta of 1.6. The risk-free
Liquid Corporation is financed with $25 million of risk-free debt and $50 million of ordinary shares, which have an equity beta of 1.6. The risk-free rate is 4%, and the expected return on the market portfolio is 13%. If the company issues $25 million more ordinary share and uses the proceeds to buy back all outstanding debt, the company's cost of capital (in a perfect capital market) will be:
A. 4% B. 18.4% C. 13.6% D. None of the options.
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