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Q2. Purple Inc. has 10 million shares outstanding, now trading at 75 per share. It has also issued 200 million long-term bonds at an interest
Q2. Purple Inc. has 10 million shares outstanding, now trading at 75 per share. It has also issued 200 million long-term bonds at an interest rate of 8 percent. The firm estimated the expected rate of return for shareholders to be 20 percent in the levered company. c) How much higher would the WACC be if the company used no debt at all? (For this problem you can assume that the firm's overall asset return is not affected by its capital structure or by interest tax shields). (14 marks)
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