James Bay Water Park Company operates in a world with 15 percent taxes and no financial distress.The firm has a debt/equity ratio of 1.The cost of equity to James Bay Water Park is 20 percent and the cost of debt is 8 percent.The only difference between Lanudiere Resort Company and James Bay Water Park is that Lanudiere Resort has a debt/equity ratio of 2.What is the cost of equity for Lanudiere Resort?
A) 25.52%
B) 11.20%
C) 13.40%
D) 14.49%

Question

Quizplus · Accepted Answer

20%=K_u+(K_u - 8%)* (1−.15)*1/1 then solve it K_u=14.49% K_e= 14.49% + (14.49% − 8%)* (1−.15)* 2 ,K_e = 25.52%

James Bay Water Park Company Operates in a World with 15