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Find how much would the capital structure shift change

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Reference no: EM132811431

Problem 1: C Corporation uses no debt, its beta is 1.10, and its tax rate is 40%. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 6.0% and the market risk premium is 7.0%, by how much would the capital structure shift change the firm's cost of equity? The new beta is 1.38 using bL = bU × (1+ (D/E) × (1 - T)) .

Problem 2: What is the cost of debt for the bonds with coupon rate of 8.5% semi-annual, P1,000 face value with maturity period of 12 years? The issue price of the bond is P875.00. Tax rate is 35%.

Reference no: EM132811431

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