Capital structure shift change the firm cost of equity

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Reference no: EM131178712

Paxon Corporation uses no debt, its beta is 1.10, and its tax rate is 40%. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 5.0% and the market risk premium is 8.0%, by how much would the capital structure shift change the firm's cost of equity?

Reference no: EM131178712

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