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Shadow Corp. has no debt but can borrow at 6.9%. The firm’s WACC is currently 8.7%, and the tax rate is 35%.
a. What is Shadow’s cost of equity? (Percentage)
b. If the firm converts to 35% debt, what will its cost of equity be? (Percentage)
c. If the firm converts to 40% debt, what will its cost of equity be? (Percentage)
d-1. If the firm converts to 35% debt, what will the company’s WACC be? (Percentage)
d.2. If the firm converts to 40% debt, what will the company’s WACC be? (Percentage)
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