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%.

Question

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The Answer of 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%.

A Firm Has Zero Debt in Its Capital Structure