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The management of Kinko's has had a target capital structure of 20/80 debt-to-equity (based on market values), but is contemplating moving toward a higher debt/equity

The management of Kinko's has had a target capital structure of 20/80 debt-to-equity (based on market values), but is contemplating moving toward a higher debt/equity ratio as the company financesits high rate of growth.

Under M&M theory with taxes, do the following rise, fall, or remain the same as Kinko's shifts to the higher debt ratio?

  1. WACC,
  2. Interest rate on debt,
  3. Cost of Equity,
  4. Debt/(Debt + Equity)

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