Question: ABC Company does not use debt now and use the following information. Target capital structure: Market value of debt (D)=$100,000 Market value of equity (E)=$200,000

ABC Company does not use debt now and use the following information. Target capital structure: Market value of debt (D)=$100,000 Market value of equity (E)=$200,000 Unleveraged beta (u)=0.8 Tax rate =40% What is the cost of equity of the firm under its target capital structure (risk-free rate of return =3%, market rate of return =7% )? Select one: a. 7.92% b. 7.16% C. 7.59% d. 8.05%

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