The Market Value of Charcoal Corporation's Common Stock Is $20

Multiple Choice

The market value of Charcoal Corporation's common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8 percent. If the Treasury bill rate is 5 percent, what is the company's cost of capital? (Assume no taxes.)

A) 15.0 percent
B) 14.6 percent
C) 13.0 percent
D) 7.0 percent