Assume that a firm belongs in a risk class for which the, Ask an Expert

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Assume that a firm belongs in a risk class for which the appropriate capitalization rate, ρc , is 12%, and the firm has $1,000,000 worth of debt and $5,000,000 worth of stock outstanding. If the riskless interest rate is 6%, what is this firm’s cost of equity (kj ) according to Modigliani and Miller’s Proposition II?

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