Do you agree with the new financial manager, Corporate Finance

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Do you agree with the new financial manager

Problem

Assume a Modigliani and Miller economy with perfect capital markets and no frictions. Company XYZ is currently financed only with equity. The company hires a new financial manager who argues that because the cost of debt capital is lower than the cost of equity, the firm should issue debt and repurchase some of the existing equity.

Do you agree with the new financial manager?

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Corporate Finance: Do you agree with the new financial manager

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