Final answer:
The after-tax cost of equity for TeleNyckel, Inc. is calculated using CAPM. Since equity costs are not adjusted for taxes, the correct answer is D) 16.00%, obtained by adding the risk-free rate to the product of beta and the market risk premium.
Step-by-step explanation:
The after-tax cost of equity for TeleNyckel, Inc. can be calculated using the Capital Asset Pricing Model (CAPM), which is expressed as:
Cost of Equity = Risk-Free Rate + (Beta × Market Risk Premium)
In this case, the risk-free rate is 9 percent, the beta is 1.4, and the market risk premium is 5 percent. Since we are asked for the after-tax cost of equity, we should note that taxes affect the cost of debt, not the cost of equity. Subsequently, the cost of equity capital is not adjusted for taxes.
By plugging these values into the CAPM formula, we can calculate TeleNyckel's cost of equity:
Cost of Equity = 9% + (1.4 × 5%) = 9% + 7% = 16%
The correct answer is therefore D) 16.00%.