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Question - Evans Technology has the following capital structure.
Debt 36%
Common equity 70
The after tax cost of debt is 8.00 percent, and the cost of common equity (in the form of retained earnings) is 15.00 percent.
a. What is the firm's weighted average cost of capital?
An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity.
Under this new and more debt-oriented arrangement, the after tax cost of debt is 9-00 percent, and the cost of common equity (in the form of retained earnings) is 17.00 percent
b. Recalculate the firm's weighted average cost of capita.
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