The Required Return on Equity for a Levered Firm Is

question 53

Multiple Choice

The required return on equity for a levered firm is 10.60 percent.The debt to equity ratio is ½ the tax rate is 40 percent,the pre-tax cost of debt is 8 percent.Find the cost of capital if this firm were financed entirely with equity.

• A)10 percent
• B)12 percent
• C)8.67 percent
• D)none of the options

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Definitions:

Insurance Policy

A contract between the insurer and the insured, which outlines the claims which the insurer is legally required to pay in exchange for the premium.

Net Income

The profit a company generates after deducting all costs, expenses, and taxes from its total revenue.

Accrued Revenue

Revenue that has been earned, but not yet received in cash or recorded in the accounts.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditure to the appropriate period for accurate financial reporting.