A firm currently has debt-equity ratio

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A firm currently has a debt-equity ratio of 1/2. The debt, which is virtually riskless, pays an interest rate of 7.4%. The expected rate of return on the equity is 13%. What would happen to the expected rate of return on equity if the firm reduced its debt-equity ratio to 1/3? Assume the firm pays no taxes.

Reference no: EM13890157

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