A Firm Has Zero Debt in Its Capital Structure

Multiple Choice

A firm has zero debt in its capital structure.Its overall cost of capital is 10%.The firm is considering a new capital structure with 60% debt.The interest rate on the debt would be 8%.Assuming there are no taxes or other imperfections, its cost of equity capital with the new capital structure would be _____.

A) 9%
B) 10%
C) 13%
D) 14%
E) None of the above.