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Legacy Co. has no debt but can borrow at 7%. The firm’s WACC is currently 11%,...

Legacy Co. has no debt but can borrow at 7%. The firm’s WACC is currently 11%, and the tax rate is 35%.

a. What is Legacy Co.'s cost of equity?

b. If the firm converts to 25% debt, what will its cost of equity be?

c. If the firm converts to 50% debt, what will its cost of equity be?

d. What is Legacy Co.'s WAACC in part (b)? In part (c)?

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Expert Solution

jeff jeffy answered 1 year ago
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