The Required Return on Equity for an All-Equity Firm Is

question 53

Multiple Choice

The required return on equity for an all-equity firm is 10.0 percent.They currently have a beta of one and the risk-free rate is 5 percent and the market risk premium is 5 percent.They are considering a change in capital structure to a debt-to-equity ratio of 1/2,the tax rate is 40 percent,the pre-tax cost of debt is 8 percent.Find the beta if this firm changes capital structure.

• A)1.12 percent
• B)1 percent
• C)7.4 percent
• D)none of the options

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