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Question 4. Colin's corporation has a perpetual stream of EBIT equal to $250m per year. The cost of capital for the unlevered firm is 12%.

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Question 4. Colin's corporation has a perpetual stream of EBIT equal to $250m per year. The cost of capital for the unlevered firm is 12%. The firm incurs $30m of interest payments for the perpetual bonds it has issued. The cost of debt is 6%. The corporate tax rate is 40%. (20 marks) e) If the D/E of the firm increases from 0.35 to 0.65, how does the levered beta changes (compare to ' d ')? How do you explain this change? (3)

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