The Corner Bakery Has a Debt-Equity Ratio of 0

question 64

Multiple Choice

The Corner Bakery has a debt-equity ratio of 0.54. The firm's required return on assets is 14.2 percent and its cost of equity is 16.1 percent. What is the pre-tax cost of debt based on M&M Proposition II with no taxes?

• A)7.10 percent
• B)8.79 percent
• C)10.68 percent
• D)17.56 percent
• E)18.40 percent

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