Homework Answers
RE = RA + (RA - RD) × (D/E)
Current required cost of equity = 0.25 + (0.25 - 0.12) (0) = 0.25 or 25%
New required cost of equity = 0.25 + (0.25 - 0.12) (0.20/0.80) = 0.2825 or 28.25%
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