Question: Abbe Technology (AT) has no debt and its assets cost of capital is 10%. The capital market is perfect. If AT borrowed to reach a

Abbe Technology (AT) has no debt and its assets cost of capital is 10%. The capital market is perfect.

If AT borrowed to reach a debt-to-equity ratio of 1.5, the cost of equity would be 13.75%. What would AT's cost of debt be after this (hypothetical) increase in leverage?

If AT borrowed to reach a debt-to-equity ratio of 0.5, the cost of debt would be 7%. What would AT's cost of equity be after this (hypothetical) increase in leverage?

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