Tip-Top Paving has an equity cost of capital of 16.97%.The debt to value ratio is .6,the tax rate is 34%,and the cost of debt is 11%.What is the cost of equity if Tip-Top was unlevered?

Question

Quizplus · Accepted Answer

To find the cost of unlevered equity, we need to use the following formula:
Unlevered cost of equity = cost of equity / (1 + (1 - tax rate) * debt to equity ratio)

Plugging in the given values:
Unlevered cost of equity = 16.97% / (1 + (1 - 34%) * 0.6) = 14%

Therefore, the answer is C) 14.0%.

Tip-Top Paving Has an Equity Cost of Capital of 16