A Firm Has Zero Debt in Its Capital Structure

question 64

Multiple Choice

A firm has zero debt in its capital structure.Its overall cost of capital is 9%.The firm is considering a new capital structure with 40% debt.The interest rate on the debt would be 4%.Assuming that the corporate tax rate is 34%, what would its cost of equity capital with the new capital structure be?

• A)10.3%
• B)11.0%
• C)11.2%
• D)13.9%
• E)None of the above.

---

Definitions:

Symbolic Thought

The ability to use symbols, signs, or objects to represent something else, which is a key aspect of human language and complex thinking.

Human Experience

The sum of individual and collective perceptions, feelings, thoughts, and interactions throughout one's life.

Social Exclusion

The process or act of rejecting or denying certain individuals or groups access to social interaction or inclusion within a society or group.

Physical Pain

An unpleasant sensory and emotional experience associated with actual or potential tissue damage.