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    Proportions of debt and equity financing

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    (Capital Structure weights). The required return on debt (before taxes) is 7.50%, the required return on equity is 15%, and the cost of capital is 10%. If the marginal income tax rate is 40%, what are the proportions of debt and equity financing?

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    Cost of capital = proportion of debt X after tax cost of debt + proportion of equity X cost ...

    Solution Summary

    The solution explains how to determine the proportions of debt and equity financing