Appraise michaels statement

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Reference no: EM133265628

Suppose Michael, presidente of Cowboy Milk Limited has hired you to advise on the firm's cost of capital.

Question: The company paid $1 million of dividends in the past year. Its market capitalization was $10 million. Based on his own analysis, Michael suggests that the company increases its use of equity financing, because "debt costs 12.5 percent, but equity only costs 10 percent; thus, equity is cheaper." Appraise Michael's statement.

Reference no: EM133265628

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