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Crown Inc. is a pure equity firm. Firm decides to recapitalize to take advantage of tax shield. Firm’s marginal tax rate is 40%. After a substantial borrowing, firm’s cost of equity goes up to 10%. Assuming that firm’s asset beta is 0.9, risk free rate is 2%, and EMRP is 5%, firm’s post recapitalization debt ratio is closest to 56% 72% None of the above 42% 129%.

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Financial Management, Finance

Category:- Financial Management
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