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Using market values, ABC has a debt ratio (debt/value) of .30. Equity has a return of 15% and debt is 4% and risk-free. The firm
Using market values, ABC has a debt ratio (debt/value) of .30. Equity has a return of 15% and debt is 4% and risk-free. The firm plans to issue equity to pay off debt. This will reduce the debt ratio to .15. The market risk premium is 10%. Find the return on equity after the capital structure change.
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