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ABC Inc., an all-equity firm, currently has a beta of 1.25, and rf=7% and rm=14%. Suppose the firmsells 10% of its assets (beta=1.25) and purchases the same proportion of new assets with a beta of1.1. What will be the firm's new overall required rate of return, and what rate of return must the newassets produce in order to leave the stock price unchanged?

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