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The XYZ Company has an unlevered beta of 1.25. The firm currently has no debt, but is considering changing its capital structure to be 30%

The XYZ Company has an unlevered beta of 1.25. The firm currently has no debt, but is considering changing its capital structure to be 30% debt and 70% equity. Its corporate tax rate is 40%, the current risk-free rate is 5% and the market risk premium is 4%. What is XYZ's cost of equity?

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