A firm's return on assets is 12 percent and the cost of the firm's debt is 7 percent.Given a 0.7 debt-equity-ratio, what is the levered cost of equity? Assume that there are no taxes.
A)7 percent
B)12 percent
C)13.6 percent
D)15.5 percent

Question

Quizplus · Accepted Answer

The levered cost of equity can be calculated using the formula: Levered Cost of Equity = Return on Assets + (Debt/Equity) * (Return on Assets - Cost of Debt). Substituting the given values: 12% + 0.7 * (12% - 7%) = 15.5%.

A Firm's Return on Assets Is 12 Percent and the Cost