A Firm Has Zero Debt in Its Capital Structure

question 80

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 the above.

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