A firm has an initial debt-to-capital ratio of 10% and is planning to get rid of all of its debt. The tax rate is 30% and the firm's initial pre-tax cost of debt is equal to 5%. What is the firm's cost of capital without any debt if its initial cost of capital is equal to 10%, the market risk premium is equal to 5%, and the risk-free rate is equal to 2%? 

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Calculating Cost of Capital with No Debt We can solve this problem by leveraging the concept of the ... View the full answer