The Fabric Mill Has Debt with Both a Face and a Market

question 200

Multiple Choice

The Fabric Mill has debt with both a face and a market value of $6,500. This debt has a coupon rate of 8% and pays interest annually. The expected earnings before interest and taxes are $1,400, the
Tax rate is 35%, and the unlevered cost of capital is 14%. What is the firm's cost of equity?

• A) 17.90%
• B) 18.56%
• C) 22.40%
• D) 23.59%
• E) 25.14%

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Definitions:

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