Suppose That Taggart Transcontinental Currently Has No Debt and Has

question 46

Multiple Choice

Suppose that Taggart Transcontinental currently has no debt and has an equity cost of capital of 10%.Taggart is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock.Assume perfect capital markets.If Taggart borrows until they achieved a debt-to-value ratio of 20%,then Taggart's levered cost of equity would be closest to:

• A)8.0%.
• B)9.2%.
• C)10.0%.
• D)11.0%.

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