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A company is currently all-equity financed.

A company is currently all-equity financed.

The directors are planning to raise long term debt to finance a new project.

The debt:equity ratio after the bond issue would be 30:60 based on estimated market values.

 

According to Modigliani and Miller's Theory of Capital Structure without tax, the company's cost of equity would:

A.

stay the same.

B.

decrease.

C.

increase.

D.

increase or decrease depending on the bond's coupon rate.

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