The Bakery is an all equity firm. It has million outstanding share currently prices at $10 per share. Its cost of equity is 15%. Management considers borrowing $4 million at a cost of 9% per annum. They will use the money to buy back stocks. The Bakery pays no taxes.
a. After the buy back, what will be the cost of equity?
b. what will be the weighted average cost of capital of the Bagel Bakery?

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