Question text

Suppose a firm's long$-$term debt$-$to$-$equity ratio is set at $2.$ The current debt$-$to$-$equity ratio of this firm is $2\mathrm{.}5.$ The beta of the firm is $1\mathrm{.}2.$ Assume that the risk$-$free rate is $3\%,$ the market premium is $10\%($which means that the expected market return is $13\%),$ and the marginal tax rate is $25\%.$ What is the firm's long$-$term cost of equity?

Question $16$Answer

a$.$

$0\mathrm{.}42$

b$.$

$1\mathrm{.}04$

c$.$

$13\mathrm{.}43\%$

d$.$

$7\mathrm{.}17\%$