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The Firm described in question 14 decides to adjust its capital structure by issuing more debt so as to buy back some of its equity.

The Firm described in question 14 decides to adjust its capital structure by issuing more debt so as to buy back some of its equity. In this way, it increases its gearing to 1. If we assume the conditions for Modigliani-Miller theorem are satisfied what will be the cost of equity now

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