Question: Question 17 When a firm has zero debt in its capital structure, its overall cost of capital is 8%. The firm is considering a new

Question 17

When a firm has zero debt in its capital structure, its overall cost of capital is 8%. The firm is considering a new capital structure with 50% debt (D/E=50%). The interest rate on the debt would be 5%. Assuming that the corporate tax rate is 40%, its cost of equity capital with the new capital structure would be?

Group of answer choices

less than 8.8%

between 9.2% and 9.4%

between 9.0% and 9.2%

between 8.8% and 9.0%

over 9.6%

between 9.4% and 9.6%

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