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What is the firm levered equity cost of capital

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Reference no: EM132801854

Question - A firm can be worth $100 million (with 20% probability), $200 million (with 60% probability), or $300 million (with 20% probability). The firm has one senior bond outstanding, the present value of the bond is $80 million. It also has one junior bond outstanding, its present value is $70 million. The senior bond promises an interest rate of 5%. The junior bond promises an interest rate of 26%. If the firm's projects require an appropriate cost of capital of 10%, then what is the firm's levered equity cost of capital?

Reference no: EM132801854

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