An Unlevered Firm Has Expected Earnings of $2,401 and a Market

Multiple Choice

An unlevered firm has expected earnings of $2,401 and a market value of equity of $19,600.The firm is planning to issue $4,000 of debt at 6 percent interest and use the proceeds to repurchase shares at their current market value.Ignore taxes.What will be the cost of equity after the repurchase?

A) 10.99%
B) 11.08%
C) 13.85%
D) 13.97%
E) 12.25%