Question

The firm's tax rate is 34 percent. The firm's pre-tax cost of debt is 8 percent; the firm's debt-to-equity ratio is 4; the risk-free rate is 3 percent; the beta of the firm's common stock is 1.5; the market risk premium is 9 percent. What is the firm's cost of equity capital

Answer 1

16.5%

Step-by-step explanation:

Cost of equity = risk free + beta x (market rate of return - risk free rate of return)

3 + (1.5 x 9) = 16.5%