Xavier, Inc. is an all-equity firm; its cost of equity is 13%. The firm is about to invest in a new manufacturing facility using debt such that it’s debt ratio will rise to 25%. If Xavier’s cost of debt is 7%, the risk-free rate is 4%, and if Xavier intends to maintain its debt ratio at 25%, what will Xavier’s cost of equity be after it secures debt financing? (Where appropriate, assume a corporate tax rate of 21%).

1. 13%
2. 14%
3. 15%
4. 16%
5. 17% 

Answer rating: 100% (QA)

DebtValue 025 So debtequity 025075 13 unleve... View the full answer