ABC Inc. currently has debt of $75 million and equity of $25 million for a total value (i.e. value of the levered firm, VL) of $100 million. The firm's cost of debt is 4% and it pays a corporate tax rate of 25%. The risk free rate is 3%, the expected return on the market is 8% and the firm's current equity beta is 2.15. What would be the cost of equity for ABC if it had no debt (i.e. the unlevered cost of equity, Ro)?

Answer rating: 100% (QA)

To find the unlevered cost of equity Ro for ABC Inc we can use ... View the full answer