A fiRm Has Zero Debt in Its Capital Structure

question 62

Multiple Choice

A firm has zero debt in its capital structure.Its overall cost of capital is 9%.The firm is considering a new capital structure with 40% debt.The interest rate on the debt would be 4%.Assuming that the corporate tax rate is 34%, what
Would its cost of equity capital with the new capital structure be?

• A)10.3%
• B)11.0%
• C)11.2%
• D)13.9%
• E)None of the above.

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Definitions:

Maintenance Strategy

A planned approach for conducting upkeep and repairs of equipment, infrastructure, or systems to ensure their optimal working condition and longevity.

Breakdown Maintenance

Reactive maintenance performed after a machine or system fails in order to restore it to operating condition.