A Firm Has Zero Debt and an Overall Cost of Capital

question 10

Multiple Choice

A firm has zero debt and an overall cost of capital of 13.8 percent.The firm is considering a new capital structure with 40 percent debt.The interest rate on the debt would be 7.2 percent and the corporate tax rate is 21 percent.What would be the cost of equity with the new capital structure?

• A)16.90 percent
• B)16.11 percent
• C)17.28 percent
• D)17.34 percent
• E)17.59 percent

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Definitions:

Independent Contractor

An individual or business that provides goods or services to another entity under terms specified in a contract, distinct from an employee due to the contractor’s control over their work.

Seeking Information

The process of actively looking for or obtaining data, knowledge, or answers from various sources.

Task Functions

Actions and activities that are necessary for achieving a group's objectives or completing its tasks.

Multicultural Groups

Consist of individuals from a variety of cultural backgrounds, allowing for diverse perspectives and approaches within a group.