Omega Tech has 20 million shares outstanding with a market price of 15 per share and no

debt. The corporate tax rate is 21% and all the other Modigliani-Mille assumptions hold. The

rate of return on risk-free securities is 5%, the risk premium on the market portfolio is 12%,

and the beta of Omega Tech is 0.7.

a)Show how the cost of equity and weighted average cost of capital would change if

Omega Tech decides to go ahead and raise 100 million of risk-free permanent debt.

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