A Firm Has a Debt-To-Equity Ratio of

question 64

Multiple Choice

A firm has a debt-to-equity ratio of .60. Its cost of debt is 8%. Its overall cost of capital is 12%. What is its cost of equity if there are no taxes or other imperfections?

• A) 10.0%
• B) 13.5%
• C) 14.4%
• D) 18.0%
• E) None of these.

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Definitions:

Future Values

The value of an asset or cash at a specific date in the future that is equivalent in value to a specified sum today.

Annuities

Financial products that provide a series of payments over time, often used for retirement savings.

Future Values

The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

Compounded Monthly

A method of calculating interest where the accumulated interest is added to the principal amount at the end of each month.