A Firm Has a Debt-To-Equity Ratio of 1

question 53

Multiple Choice

A firm has a debt-to-equity ratio of 1.75. If it had no debt, its cost of equity would be 9%. Its cost of debt is 7%. What is its cost of equity if the corporate tax rate is 50%?

• A) 10.0%.
• B) 10.75%.
• C) 12.50%.
• D) 7.73%.

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