A Firm Has Zero Debt in Its Capital Structure

Multiple Choice

A firm has zero debt in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 40% debt. The interest rate on the debt would be 4%. Assuming that the corporate tax rate is 34%, its cost of equity capital with the new capital structure would be?

A) 10.32%.
B) 11.20%.
C) 11.00%.
D) 13.95%.