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Hello Mr.Moffat,
I was reviewing some materials regarding the traditional view on the cost of capital and I understand that the level of cost of capital would decrease up to a certain level of gearing. Beyond that level of gearing the cost of capital will increase as higher would be the financial risk. What effect have this on the market value of the company? Is it correct to assume that, if the financial risk is higher and the expected return is higher then the level of the market value of the company would decrease as the cost of capital will increase?
Thank you
Best Regards,
Salvatore
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