The Corner Bakery Has a Debt-Equity Ratio of 0

Multiple Choice

The Corner Bakery has a debt-equity ratio of 0.54. The firm's required return on assets is 14.2 percent and its cost of equity is 16.1 percent. What is the pre-tax cost of debt based on M&M Proposition II with no taxes?

A) 7.10 percent
B) 8.79 percent
C) 10.68 percent
D) 17.56 percent
E) 18.40 percent