Suppose that Rearden Metal currently has no debt and has an equity cost of capital of 12%.Rearden is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock.Assume perfect capital markets.If Taggart borrows until they achieved a debt -to-equity ratio of 50%,then Rearden's levered cost of equity would be closest to:

Question

Quizplus · Accepted Answer

C) r_e = r_u + 11ea7e60_15d1_4e1c_ba34_2f74cff265a2_TB1624_11 (r_u - r_d) = 12% + 11ea7e60_15d1_4e1d_ba34_cb840ef5fc73_TB1624_11 (12% - 6%) = 15%

Suppose That Rearden Metal Currently Has No Debt and Has