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Gilded cage converts to debt-equity ratio

Question: Gided Cage Corp. uses no debt. The weighted average cost of capital is 15 percent. The current market value of the company is $60 million. The corporate tax rate is 40 percent.

a. What is the value of the company if Gilded Cage converts to debt-equity ratio of 1?

b. What if the debt-equity ratio is 2?

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Finance Basics: Gilded cage converts to debt-equity ratio

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Finance Basics: Gilded cage converts to debt-equity ratio

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