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QUESTION
Alpha company is entirely equity financed and has a 12% cost of equity. Suppose the company decides to issue debt with a 5% cost of debt and...
Alpha company is entirely equity financed and has a 12% cost of equity. Suppose the company decides to issue debt with a 5% cost of debt and repurchase equity so that it will be 40% debt financed. If there are no corporate taxes and the new capital structure is expected to be permanent. what will be the new cost of equity?
