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Posted on Jul 25, 2024

Nova Sun Ltd. is a levered firm with a weighted average cost of capital of 9%. Currently it has a debt to equity ratio of

Nova Sun Ltd. is a levered firm with a weighted average cost of capital of 9%.

Currently it has a debt to equity ratio of 1.5, a before-tax cost of debt of 5.5% and a corporate tax rate of 35%.

Assume there are no bankruptcy costs.

a) What is the firms cost of equity?

b) What is Nova Suns unlevered cost of equity?

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