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    Cost of Equity for a Firm

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    What is the cost of equity for a firm for which the required return on assets is 14%, the cost of debt is 11%, and the target debt/equity ratio is 0.5? Ignore taxes.

    a) 11.0%
    b) 12.5%
    c) 14.0%
    d) 15.5%
    e) 16.0%

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    Solution Preview

    Required return on assets=WACC= (E/V)xRe + (D/V)xRdx(1-Tc)

    Re = cost of equity
    Rd = cost of debt
    E = the market value of the ...

    Solution Summary

    Required return on assets is considered.