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QUESTION
NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 13%. Suppose NatNah decides to increase its leverage to...
NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 13%. Suppose NatNah decides to increase its leverage to maintain a market debt-to-value ratio of 0.5. Suppose its debt cost of capital is 8% and its corporate tax rate is 35%. If NatNah's pre-tax WACC remains constant, what will be its (effective after-tax) WACC with the increase in leverage?
