Calculate the Company's Cost of Equity Given the Following Information

question 78

Multiple Choice

Calculate the company's cost of equity given the following information: return on assets 10.50%; return on debt 8.75%; total debt $995,000; total equity $1,520,000.

• A) 8.65%
• B) 9.65%
• C) 10.65%
• D) 11.65%
• E) 12.65%

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Definitions:

Fed

The Federal Reserve System, which is the central banking system of the United States, responsible for monetary policy.

Loans

Money borrowed that is expected to be paid back with interest.

Open Market

An economic system with few barriers to free market activity where prices for goods and services are determined by supply and demand.

Excess Reserves

Excess funds maintained by a bank or financial institution above the minimum levels mandated by regulatory authorities, creditors, or the institution's internal regulations.