The Pizza Palace Has a Cost of Equity of 15

Multiple Choice

The Pizza Palace has a cost of equity of 15.3 percent and an unlevered cost of capital of 11.8 percent.The company has $22,000 in debt that is selling at par value.The levered value of the firm is $41,000 and the tax rate is 34 percent.What is the pre-tax cost of debt?

A) 4.73 percent
B) 6.18 percent
C) 6.59 percent
D) 7.22 percent
E) 9.92 percent