The Following Data Pertains to Zonk Corp -
Assuming That Riskless Rate Is 4

question 42

Multiple Choice

The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions) :
$\begin{array}{llcc} \text { Total assets } &\$6,840 \\ \text { Interest-beaning debt } &\$3,562\\ \text { Average pre-tax borrowing cost} &11.59\%\\ \text {Common equity: } &\\ \text { Book value } &\$2,560\\ \text { Market value } &\$12,850\\\text { Income tax rate } &35\%\\ \text {Market equity beta } &1.24\\\end{array}$
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Assuming that riskless rate is 4.2% and the market premium is 6.2% calculate Zonk's cost of equity capital:

• A) 10.4%
• B) 7.69%
• C) 11.89%
• D) 2.0%

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