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

question 78

Multiple Choice

A firm has a debt-to-equity ratio of 1.75. If it had no debt,its cost of equity would be 14%. Its cost of debt is 10%. What is its cost of equity if the corporate tax rate is 50%?

• A) 14.0%
• B) 16.0%
• C) 17.5%
• D) 21.0%
• E) None of these.

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