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You have asked your new intern to estimate the weighted average cost of capital for your firm. The intern estimates cost of debt as 6%

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You have asked your new intern to estimate the weighted average cost of capital for your firm. The intern estimates cost of debt as 6% and the cost of equity as 3%. The financial statements show 500M in debt and 500M in equity, so the intern estimates the firm is 50% debt and 50% equity. With a 25% tax rate, the WACC is 3.75%. The firm has market capitalization of $1500. What is your opinion of the estimate from the intern? Explain

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