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The manager of Starbucks has had a target capital structure of 20/80 debt to equity based on market values but is contemplating moving toward a

The manager 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)

Interest rate in debt Up Down No Change

Cost of equity Up Down No Change

Debt/(Debt+Equity) Up Down No Change

WACC Up Down No Change

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