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    Debt Equity ratio and opportunity cost

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    1. A firm has $ 4 millions in total assets and 2.2 millions in equit. How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio?

    2. A firm has an unused machine that originally cost $75,000, has a book value of $20,000 and is currently worth $25,000. Ignoring taxes, the correct opportunity cost for this machine in capital budgeting decisions is?

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    Solution Preview

    A firm has $ 4 millions in total assets and 2.2 millions in equit. How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio?
    The ...

    Solution Summary

    This explains the steps to compute debt Equity ratio and opportunity cost

    $2.19

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