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The management of Starbucks 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 Starbucks 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 finances its high rate of growth. Under M&M theory with taxes, what would happen to its WACC and the various components of WACC as it shifted to the higher debt ratio? (Circle the right answer)
Cost of Equity | Up | Down | No Change |
Interest rate on debt | Up | Down | No Change |
Debt/(Debt + Equity) | Up | Down | No Change |
WACC | Up | Down | No Change |
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