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Use the below information for the following three questions (Questions 2-4): Neverending Storytellers, a regional boutique early learning center, has recently taken out a loan
Use the below information for the following three questions (Questions 2-4): Neverending Storytellers, a regional boutique early learning center, has recently taken out a loan to support their planned growth phase through which they hope to go national. Prior to the loan, the existing shareholders expected to earn 20% on their investment. The company has 10,000 shares of stock outstanding, and each has a value of $100. The new $1,000,000 loan has an interest rate of 5% and will be repaid over the next 10 years in equal monthly installments. Your close friend, Gertrude Kinder, the company's CFO, is used to working with a 20% discount rate on their proposed projects. She knows she needs to use a different rate going forward, but is unsure what rate she should use now. What is the businesses new cost of equity upon taking on the loan? Question 3 Question 3 What is their new weighted average cost of capital or WACC at the inception of the loan? The company's cost of equity will naturally decline over time as the loan is paid off, unless further debt is taken on. True False
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