The Required Return on Equity for a Levered Firm Is

question 10

Multiple Choice

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

• A)10%
• B)12%
• C)8.67%
• D)None of the above