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Debt increases the cost of equity

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Reference no: EM131493316

We have discussed various types of Risk in the class. Two specific Risk types we have talked about are: Business Risk and Financial Risk.

Financial Risk occurs when the Firm decides to use Debt in its capital structure. If that is True, then answer the following question below. If False, then do not answer.

If, indeed, debt increases the Cost of Equity, which variable in the following formula would that (debt risk) be implied and how is it captured?

rs = rrf + (rm-rrf) B

Reference no: EM131493316

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