Question: Assume that H&M changes its capital structure so that its market value weight of debt to capital increases to 45 percent, and its after-tax interest

Assume that H&M changes its capital structure so that its market value weight of debt to capital increases to 45 percent, and its after-tax interest rate on debt at this new leverage level is 4 percent. Assume that the equity market risk premium is 5 percent. What will be the cost of equity at the new debt level? What will be the weighted average cost of capital?

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