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What would be your new cost of debt

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Reference no: EM132939370

Question - One of your new employees notes that your debt has a lower cost of capital (5%) than your equity (15%). So, he suggests that the firm swap its capital structure from 30% debt and 70% equity to 70% debt and 30% equity instead. He estimates that after the swap, your cost of equity would be 20%.

a. What would be your new cost of debt?

b. Have you lowered your overall cost of capital?

Reference no: EM132939370

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