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Please help me i will give good rating Question 4 The total market value of common stock of Karuna Spice Company is $5.2 million, and

Please help me i will give good rating

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Question 4 The total market value of common stock of Karuna Spice Company is $5.2 million, and total market value of its debt is at $3.2 million. The financial manager estimates that the beta of the company's stock is currently at 1.3 and that the expected risk premium on the market is 5%. The interest rate is 3.5%. Assume that Karuna's debt is risk-free and that there is no tax. a) What is the required rate of return on Karuna's stock? b) Estimate Karuna's cost of capital c) Now suppose Karuna wants to diversify into the manufacture of gym equipment. The beta of the gym equipment manufacturers is 1.4. The cost of equity is now 10.5%. The interest rate remains unchanged. Estimate the after- tax cost of capital on Karuna's new venture. Assume corporate tax is 25% d) Briefly explain how a company can determine its cost of debt

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