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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%.

How would the cost of equity change if the company’s debt-to-equity ratio rises to 50%? Show your calculations.

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