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Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 8 . 1 % , a debt cost of capital of 6
Suppose Goodyear Tire and Rubber Company has an equity cost of capital of a debt cost of capital of a marginal corporate tax rate of and a debtequity ratio of Assume that Goodyear maintains a constant debtequity ratio.
a What is Goodyear's WACC?
b What is Goodyear's unlevered cost of capital?
c Explain, intuitively, why Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC.
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