Rosita's has a cost of equity of 12.41% and a pre-tax cost of debt of 8.5%.The debt-equity ratio is .60 and the tax rate is .34.What is Rosita's unlevered cost of capital?
A)11.30%
B)12.33%
C)13.97%
D)14.08%
E)14.60%

Question

Quizplus · Accepted Answer

To calculate the unlevered cost of capital, we need to use the formula:

Unlevered cost of capital = Cost of equity / (1 + (1 - tax rate) x (debt/equity))

Plugging in the given values, we get:

Unlevered cost of capital = 12.41% / (1 + (1 - 0.34) x 0.60)
= 11.30%

Therefore, the correct answer is A) 11.30%.

Rosita's Has a Cost of Equity of 12