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Suppose the book value of ABC Inc. debt is $1,000,000 and its market capitalization (or the market value of its equity) is $4,000,000. ABCs cost

Suppose the book value of ABC Inc. debt is $1,000,000 and its market capitalization (or the market value of its equity) is $4,000,000.

ABCs cost of equitythe minimum return that shareholders demandis 10%. The companys cost of debt is 5% and the tax rate is 25%.

What is the weighted average cost of capital?

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