Key Motors Has a Cost of Equity of 14

Multiple Choice

Key Motors has a cost of equity of 14.26 percent and an unlevered cost of capital of 11.34 percent. The company has $35,000 in debt that is selling at par value. The levered value of the company is $79,000 and the tax rate is 21 percent. What is the pretax cost of debt?

A) 5.73 percent
B) 6.18 percent
C) 6.58 percent
D) 6.69 percent
E) 5.92 percent