Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later its debt ratio is down to 15% (D/V = .15). The interest rate has dropped to 8.6%. Recalculate Federated’s WACC under these new assumptions. The company’s business risk, opportunity cost of capital, and tax rate have not changed. Use the three-step procedure explained in Section 19-3.
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