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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 Summary

Required return on assets is considered.

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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 ...

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Umut Oltulu, MBA
Education
  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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