Question: Eccles Inc., a zero growth firm, has an expected EBIT of $100,000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt,

Eccles Inc., a zero growth firm, has an expected EBIT of $100,000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. Refer to the data for Eccles Incorporated.

What is the firm's cost of equity according to MM with corporate taxes?

a. 21.0% b. 32.0% c. 25.9% d. 28.8% e. 23.3%

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