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A firm is solely financed by equity with market value of $50,000 and cost of equity of 10%. It wishes to raise another $30,000 via

A firm is solely financed by equity with market value of $50,000 and cost of equity of 10%. It wishes to raise another $30,000 via corporate bonds with cost of debt of 5% and use all of it to buy back outstanding equity (no cash holding). Hold investment policies fixed. In a MM world with tax rate of 40%,

  1. The cost of equity after debt is raised is
  2. The additional value created by debt is
  3. The WACC after debt is raised is

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