Question $3$

$10$ points

Save Answer

A company's tax rate is $40\%,$ its beta is $1\mathrm{.}20,$ and it uses no debt. However, the CFO is considering moving to a capital structure with $30\%$ debt and $70\%$ equity. If the risk$-$free rate is $5\mathrm{.}0\%$ and the market risk premium is $6\mathrm{.}0\%,$ by how much would the capital structure shift change the firm's cost of equity?

$$ a$.2\mathrm{.}26\%$

$$ b$.1\mathrm{.}70\%$

$.2\mathrm{.}05\%$

$$ d$.1\mathrm{.}97\%$

$$ e$.1\mathrm{.}85\%$Question $3$

A company's tax rate is $40\%,$ its beta is $1\mathrm{.}20,$ and it uses no debt. However, the CFO is considering moving to a capital structure with $30\%$ debt and $70\%$ equity. If the risk$-$free rate is $5\mathrm{.}0\%$

and the market risk premium is $6\mathrm{.}0\%,$ by how much would the capital structure shift change the firm's cost of equity?

a$.2\mathrm{.}26\%$

b$.1\mathrm{.}70\%$

c$.2\mathrm{.}05\%$

d$.1\mathrm{.}97\%$

e$.1\mathrm{.}85\%$