A Firm Has Zero Debt in Its Capital Structure

question 75

Multiple Choice

A firm has zero debt in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 40% debt. The interest rate on the debt would be 4%. Assuming that the corporate tax rate is 34%,what would the cost of equity capital with the new capital structure be?

• A) 10.3%
• B) 11.0%
• C) 11.2%
• D) 13.9%
• E) None of these.

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Definitions:

Technologically Advanced

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REM Stage

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