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Question 2: Assume the value of a firm is $175 million dollars if it is all equity financed and operates in a world where there
Question 2: Assume the value of a firm is $175 million dollars if it is all equity financed and operates in a world where there is a 25% corporate tax rate. If the cost of equity financing is 10% (if the firm is all equity financed) and the cost of debt financing is 6% and there are no changes in the asset structure (left-hand side of the balance sheet) if the financing changes, answer the following: - What is the value of the firm if the firm if the firm is all equity financed? - What is the value of the firm if the firm has 40% debt financing and 60% equity financing? - What is the cost of equity capital (expected return on equity) if the firm if the firm is all equity financed? - What is the cost of equity capital (expected return on equity) if the firm has 40% debt financing and 60% equity financing?
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