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12 December, 14:15

A firm has zero debt in its capital structure and has an overall cost of capital of 10 percent. The firm is considering a new capital structure with 60 percent debt at an interest rate of 8 percent. Assuming there are no taxes or other imperfections, what would be the cost of equity with the new capital structure

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  1. 12 December, 14:43
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    13%

    Explanation:

    rE = 10 + (60/40) (10 - 8) = 10 + 3 = 13
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