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You would like to estimate the weighted average cost of capital for a new airline business. Based on its industry asset beta, you have already estimated an unlevered cost of capital for the firm of 9%. However, the new business will be 25% debt financed, and you anticipate its debt cost of capital will be 6%.

A) If its corporate tax rate is 40%, what is your estimate of its WACC? Please show your work

B) If you are a financial manager, how do you calculate the cost of capital?

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Financial Management, Finance

Category:- Financial Management
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