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Interest rates and equity




Minuteman Mountain Tours currently has zero debt. Now the company is considering using some debt, moving to a 55% debt, 45% equity financed firm. The interest rate on the new debt would be be 7% and the company's tax rate is 40%. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise 1% from it's current 10%. If this plan were carried out, by how much would the WACC change?


Paper#17873 | Written in 18-Jul-2015

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