An All-Equity Firm Has a Return on Assets of 15

question 68

Multiple Choice

An all-equity firm has a return on assets of 15.3 percent. The firm is considering converting to a debt-equity ratio of 0.30. The pre-tax cost of debt is 8.1 percent. Ignoring taxes, what will the cost of equity be if the firm switches to the levered capital structure?

• A) 15.57 percent
• B) 16.28 percent
• C) 16.67 percent
• D) 17.46 percent
• E) 18.19 percent

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