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Assume that Modigliani and Miller’s perfect capital markets assumptions hold and there are no corporate taxes....

Assume that Modigliani and Miller’s perfect capital markets assumptions hold and there are no corporate taxes. A company’s cost of debt is 10%, its cost of equity is 25% and its debt-to-equity ratio is 25%

Assume that the riskfree rate is 10% and the market risk premium is 7.5%. How has the company’s equity beta changed with the debt-to-equity ratio changing from 25% to 50%? Show your calculations.

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