A Firm Has a Debt-To-Equity Ratio of 1

question 11

Multiple Choice

A firm has a debt-to-equity ratio of 1. Its cost of equity is 16%, and its cost of debt is 8%. If the corporate tax rate is.25, what would its cost of equity be if the debt-to-equity ratio were 0?

• A) 11.11%.
• B) 12.57%.
• C) 13.33%.
• D) 16.00%.

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