A Firm Has Zero Debt in Its Capital Structure and Has

Multiple Choice

A firm has zero debt in its capital structure and has an overall cost of capital of 10 percent.The firm is considering a new capital structure with 60 percent debt at an interest rate of 8 percent.Assuming there are no taxes or other imperfections,what would be the cost of equity with the new capital structure?

A) 9 percent
B) 10 percent
C) 13 percent
D) 14 percent
E) 11 percent