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Company B currently has no debt. Its equity cost of capital is currently 12% and the effective tax rate is 30%. Company B wants to issue debt to buy back equity, with the resulting debt-to-equity ratio of 1 then being held constant forever. If it does so, the cost of debt will be 4%. What will be Company B's equity cost of capital if it issues the debt?

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Financial Management, Finance

Category:- Financial Management
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