A Firm Has Zero Debt in Its Capital Structure

question 34

Multiple Choice

A firm has zero debt in its capital structure. Its overall cost of capital is 10 percent. The firm is considering a new capital structure with 60 percent debt. The interest rate on the debt would be 8 percent. Assuming there are no taxes, its cost of equity capital with the new capital structure would be

• A)8 percent.
• B)16 percent.
• C)13 percent.
• D)10 percent.

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