A Firm Has Zero Debt in Its Capital Structure

question 47

Multiple Choice

A firm has zero debt in its capital structure. Its overall cost of capital is 10%. The firm is considering a new capital structure with 60% debt. The interest rate on the debt would be 8%. Assuming there are no taxes or other imperfections, its cost of equity capital with the new capital structure would be:

• A) 9%.
• B) 14%.
• C) 13%.
• D) 10%.

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Definitions:

Congenital Disabilities

Refers to physical or mental disabilities that are present at birth or develop during the early months of life.

Birth Defects

Conditions that are present at birth and can affect the structure or function of the body, ranging from mild to severe.

Preventable Cause

A factor that can be modified or avoided to reduce the likelihood of an adverse health event or condition.

Neurotoxicants

Substances that are poisonous or harmful to the nervous system, potentially causing damage to nerve tissue.