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Thompson & Thomson is unlevered and is valued at $500,000. It is currently deciding whether including debt in its capital structure would increase its value.
Thompson \& Thomson is unlevered and is valued at $500,000. It is currently deciding whether including debt in its capital structure would increase its value. The current of cost of equity is 10 percent. Under consideration is issuing $300,000 in new debt with an 8 percent interest rate. The company would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and its effective marginal tax bracket is 34%. What will the company's new cost of equity be? 10.99% 12.36% 11.98% 11.31% 10.56%
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