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Company cost of equity-drakes doughnuts limited

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Reference no: EM132419632

Problem: Drakes Doughnuts Limited currently has no debt. If they choose to borrow they can do so at a rate of 6.4%. The firm's WACC is currently 9.5% and the tax rate is 35%. There are no costs of financial distress.

Required:

Question 1: What is the company's cost of equity?

Question 2: If the firm converts to 25% debt, what will its' cost of equity be?

Question 3: If the firm converts to 50% debt, what will its' cost of equity be?

Question 4: What is the company's WACC in part (c)?

Can you please help me by providing the authentic solution of this problem.

Reference no: EM132419632

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