Suppose That Rearden Metal Currently Has No Debt and Has

question 70

Multiple Choice

Suppose that Rearden Metal currently has no debt and has an equity cost of capital of 12%.Rearden is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock.Assume perfect capital markets.If Rearden borrows until they achieved a debt-to-equity ratio of 50%,then Rearden's levered cost of equity would be closest to:

• A)10.0%.
• B)12.0%.
• C)15.0%.
• D)16.0%.

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