A Firm Has Zero Debt in Its Capital Structure

question 22

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) 10%
• C) 13%
• D) 14%
• E) None of these.

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