Solved: The firm can increase its debt by 8 million to total of 10, Management Theories

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The firm can increase its debt by 8 million to total of 10

Question: The firm can increase its debt by $8 million, to total of $ 10 million, using the new debt to buy back and retire some of its shares. Its interest rate on all debt will be 12% (it will have to call and refund the old debt), and its cost of equity will rise from 15 to 17 percent. EBIT will remain constant. Should the firm change its capital structure?

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