An All-Equity Firm Has a Return on Assets of 21

Multiple Choice

An all-equity firm has a return on assets of 21 percent.The firm is considering converting to a debt-equity ratio of .48.The pretax cost of debt is 6.9 percent.Ignoring taxes, what will the cost of equity be if the firm switches to the levered capital structure?

A) 28.22 percent
B) 27.49 percent
C) 28.81 percent
D) 29.24 percent
E) 27.77 percent