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CCC is an unlevered firm with a cost of capital of 13.4%. The company is considering...

CCC is an unlevered firm with a cost of capital of 13.4%. The company is considering adding debt to its capital structure to reduce equity. Specifically, the company is evaluating the consequences of adding $4 million in perpetual debt at a pre-tax cost of 6.3%. The firm expects to generate EBIT of $4 million every year into perpetuity. Assume interest expense is tax deductible. The firm pays a tax rate of 33%. Ignore financial distress costs.

Based on MM Prop II, what will be CCC's new cost of equity if it takes on the debt?

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