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The debt-equity ratio of a firm is 2:1 and its WACC is 7%. If the pre-tax cost of debt is 8% and the corporate tax
The debt-equity ratio of a firm is 2:1 and its WACC is 7%. If the pre-tax cost of debt is 8% and the corporate tax rate is 40%, which of the following statements is true?
The cost of levered equity is 11.4%.
The cost of unlevered equity is 9.545%.
a. i only
b. ii only
c. Both of the above
d. None of the above
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