Question: SHOW ALL WORK FOR THUMBS UP Crown Inc. is a pure equity firm. Firm decides to recapitalize to take advantage of tax shield. Firms marginal

SHOW ALL WORK FOR THUMBS UP

Crown Inc. is a pure equity firm. Firm decides to recapitalize to take advantage of tax shield. Firms marginal tax rate is 40%. After a substantial borrowing, firms cost of equity goes up to 10%. Assuming that firms asset beta is 0.9, risk free rate is 2%, and EMRP is 5%, what should be firms post recapitalization debt to capital ratio? YOUR SOLUTION:

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