A Firm Is Unlevered and Has a Cost of Equity

question 60

Multiple Choice

A firm is unlevered and has a cost of equity capital of 9 percent. What is the cost of equity if the firm becomes levered at a debt-equity ratio of 2? The expected cost of debt is 7 percent. (Assume no taxes.)

• A)15.0 percent
• B)16.0 percent
• C)14.5 percent
• D)13.0 percent

---

Definitions:

Navigating

The act of planning and directing the course of a journey, typically using maps or instruments, to reach a destination.

Ill-Defined Problem

A problem lacking clear goals, solution paths, or expected solution methods, making it difficult to solve.

Middle East Crisis

A term often used to describe the complex and ongoing conflicts, political instability, and wars in the Middle East region.

Finding Solution

Finding solution involves the process of identifying, defining, and solving problems through critical thinking and decision-making strategies.