The Corner Bakery has a debt-equity ratio of 0.54. The firm's required return on assets is 14.2 percent and its cost of equity is 16.1 percent. What is the pre-tax cost of debt based on M&M Proposition II with no taxes?
A)7.10 percent
B)8.79 percent
C)10.68 percent
D)17.56 percent
E)18.40 percent

Question

Quizplus · Accepted Answer

R_E = 0.161 = 0.142 + (0.142 - R_d) F1F1F1S1F1F1F10 0.54; R_d = 10.68 percent

The Corner Bakery Has a Debt-Equity Ratio of 0