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Can I use M&M formula to calculate the revised cost of equity (ke) for part B?
As per my understanding, M&M formula can be used when gearing change. In this question, Rosa is considering a scheme to repay existing debt of $800m and issue new debt of $2,400m which will result in an increased gearing of Jupiter. Ke increases as gearing increases which match the M&M model (with tax).
Please correct me if I am wrong. Thank you.
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