Your fiRm Has a Debt-Equity Ratio of

question 365

Multiple Choice

Your firm has a debt-equity ratio of .60. Your cost of equity is 11% and your after-tax cost of debt is 7%. What will your cost of equity be if the target capital structure becomes a 50/50 mix of debt and
Equity?

• A) 9.50%
• B) 10.50%
• C) 11.00%
• D) 11.25%
• E) 12.00%

---

Definitions:

Mersel-Kébir

A naval engagement off the coast of Algeria in 1940, where the British Royal Navy attacked French Navy ships to prevent them from potentially falling into German hands during World War II.

Neville Chamberlain

Neville Chamberlain was a British prime minister best known for his policy of "appeasement" toward Adolf Hitler's Germany in the lead-up to World War II.

Prime Minister

The Prime Minister is the head of government in a parliamentary system, responsible for running the state's administration and implementing executive decisions.