The Doll House has a pre-tax cost of debt of 7.9 percent and a return on assets of 11.7 percent. The debt-equity ratio 0.45. Ignore taxes. What is the cost of equity?

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the formula: Cost of Equity = Return on Assets + (Return on Assets - Cost of Debt) * Debt-Equity Ratio. Substituting the given values: Cost of Equity = 11.7% + (11.7% - 7.9%) * 0.45 = 13.41%.

The Doll House Has a Pre-Tax Cost of Debt of 7.9