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Major Bagel is an all-equity firm. It has 20 million outstanding shares currently priced at $25 per share. Its cost of equity is 18%. Management

Major Bagel is an all-equity firm. It has 20 million outstanding shares currently priced at $25 per share. Its cost of equity is 18%. Management considers borrowing $100 million at a cost of 8% per annum. They will use the money to buy back stocks. Major Bagel pays no taxes. a. After the buy back, what will be the cost of equity? b. What will be the weighted average cost of capital of the Major Bagel?

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