Marvelous at the Mall Inc.has a before-tax cost of debt of 8.00%,but the risk-free rate is only 3.00%.If the market risk premium for equity is 6.00% and the firm has a beta of 1.25,what is the required return on equity for the firm?

Question

Quizplus · Accepted Answer

The correct answer is A because the required return on equity is 10.50%. The formula for the required return on equity is:Required return on equity = Risk-free rate + Beta * Market risk premiumPlugging in the given values, we get:Required return on equity = 3.00% + 1.25 * 6.00% = 10.50%