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A Firm Is Unlevered and Has a Cost of Equity

Question 60

Multiple Choice

A firm is unlevered and has a cost of equity capital of 9 percent. What is the cost of equity if the firm becomes levered at a debt-equity ratio of 2? The expected cost of debt is 7 percent. (Assume no taxes.)


A) 15.0 percent
B) 16.0 percent
C) 14.5 percent
D) 13.0 percent

Correct Answer:

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