APM Inc.is in the property management business and has a required return on its assets of 14%.It can borrow in the debt market at 7%.If there are no taxes and M&M's proposition II holds,what is the cost of equity if there is 30% equity financing and 70% debt financing?
A)55%
B)40%
C)30%
D)16%

Question

Quizplus · Accepted Answer

According to M&M Proposition II without taxes, the cost of equity is calculated as: Cost of Equity = Cost of Assets + (Cost of Assets - Cost of Debt) * (Debt/Equity). Substituting the given values: Cost of Equity = 14% + (14% - 7%) * (70/30) = 30%.

APM IncIs in the Property Management Business and Has a Required