Question: Sinclair Ltd. is a levered firm with a weighted average cost of capital of 12%. Currently the company has a debt to equity ratio of

Sinclair Ltd. is a levered firm with a weighted average cost of capital of 12%. Currently the company has a debt to equity ratio of 1.5, a before-tax cost of debt of 5%, and a corporate tax rate of 36%. Assume there are no bankruptcy costs.

What is the firms cost of equity? (5 marks)
What is the unlevered cost of equity of Sinclair Limited? (3 marks)

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