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HiFlyer Corporation does not currently have any debt. Its tax rate is 0.4 and its...

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Finance

HiFlyer Corporation does not currently have any debt. Its tax rate is 0.4 and its unlevered beta is estimated by examining comparable companies to be 2.0. The 10-year Treasury bond rate is 6.25% and the historical risk premium over the risk free rate is 5.5%.

a. Calculate the firms current cost of equity.

b. Estimate the firms cost of equity after it increases its leverage to 75% of equity?

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