Final answer:
The cost of capital for the all-equity firm is calculated as 15.2%, found by dividing the expected earnings of $1,900 by the equity of $12,500 and then multiplying by 100.
Step-by-step explanation:
To calculate the cost of capital for an all-equity firm, we need to determine the firm's expected rate of return on its equity, which can be found using the formula for the rate of return:
Cost of Capital (Return on Equity) = (Expected Earnings / Equity) x 100
Using the given figures:
Cost of Capital (Return on Equity) = ($1,900 / $12,500) x 100 = 15.2%
Therefore, the correct answer is B. 15.2%, which represents the expected return on equity the firm would need to justify its investment in various projects to satisfy its equity holders.