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A Firm Has Zero Debt in Its Capital Structure

Question 4

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,its cost of equity capital with the new capital structure would be:


A) 8%
B) 16%
C) 13%
D) 10%

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