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Morales Publishing's tax rate is 4 0 % , its beta is 0 . 8 , and it uses no debt. However, the CFO is

Morales Publishing's tax rate is 40%, its beta is 0.8, and it uses no debt. However, the CFO is considering moving to a capital structure funded by debt, which produces a beta of 1.5. If the risk-free rate is 3% and the market risk premium is 7%, by how much would the capital structure shift change the firm's cost of equity (in percent)?

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