A Firm Has Zero Debt and an Overall Cost of Capital

question 61

Multiple Choice

A firm has zero debt and an overall cost of capital of 12.5 percent.The firm is considering a new capital structure with 55 percent debt at an interest rate of 6.5 percent.Assume there are no taxes or other imperfections.What will be the cost of equity capital of the levered firm?

• A)18.47%
• B)13.67%
• C)15.80%
• D)19.83%
• E)21.16%

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Definitions:

Episiotomy

A surgical incision in the area between the birth canal and the anus that widens the vaginal opening, preventing random tearing during childbirth.

Anesthesia

A method that produces partial or total loss of the sense of pain.

Labor

The physiological process by which the uterus contracts to deliver the fetus and placenta from the mother's body.

Electronic Sensing Device

is a tool that detects changes in its environment and conveys this information to an observational or monitoring system.