Calculating WACC. Malkin Corp. has no debt but can borrow at 7 percent. The firm’s WACC is currently 12 percent, and there is no corporate tax.
a. What is Malkin’s cost of equity?
b. If the firm converts to 30 percent debt, what will its cost of equity be?
c. If the firm converts to 60 percent debt, what will its cost of equity be?
d. What is Malkin’s WACC in part (b)? In part (c)?
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