Country Markets Has an Unlevered Cost of Capital of 12

Multiple Choice

Country Markets has an unlevered cost of capital of 12 percent, a tax rate of 38 percent, and expected earnings before interest and taxes of $15,700. The company has $11,000 in bonds outstanding that have a 6 percent coupon and pay interest annually. The bonds are selling at par value. What is the cost of equity?

A) 12.55 percent
B) 13.36 percent
C) 13.64 percent
D) 14.07 percent
E) 14.29 percent