Discuss in detail the statement of the consultant

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Assume a Modigliani and Miller economy. Company XYZ is currently financed only with equity. The management of the company hires a consultant. The consultant makes the following suggestion: "My advice for XYZ is to issue debt and use it to repurchase some of the company's equity. This would allow XYZ to get the benefit of a low cost of capital of debt without raising its cost of capital of equity." Discuss in detail the statement of the consultant.

Reference no: EM133000120

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