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Rajan Inc has a debt - equity ratio of 2 . 5 . The firm s weighted average cost of capital is 1 5 percent,

Rajan Inc has a debt-equity ratio of 2.5. The firms weighted average cost of
capital is 15 percent, and its pretax cost of debt is 10 percent. Rajan is subject
to a corporate tax rate of 35 percent.
(a) What is Rajans cost of equity capital?
(b) What is Rajans unlevered cost of equity capital?
(c) What would Rajans weighted average cost of capital be if the firms
debt-equity ratio were 0.75?
(d) What would Rajans weighted average cost of capital be if the firms
debt-equity ratio were 1.5?

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