TeleNyckel, Inc. has a beta of 1.4. If the risk-free rate of return is 9 percent and the market risk premium is 5 percent, then what is the firm's after-tax cost of equity capital if the firm's marginal tax rate is 30 percent?
A) 11.20%
B) 10.60%
C) 15.14%
D) 16.00%

Question

Quizplus · Accepted Answer

The cost of equity is calculated using the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium = 9% + 1.4 * 5% = 16%. The tax rate does not affect the cost of equity.