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A firm's pre-tax cost of debt is 10%. If the firm is of average risk, what...

A firm's pre-tax cost of debt is 10%. If the firm is of average risk, what is the cost of equity using the bond yield plus premium approach?

a.

11%
b.

15%
c.

13%
d.

10%
e.

14%
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Answer #1

Cost of equity using bond yield plus risk premium=pre-tax cost of debt+risk premium=pre-tax cost of debt+4%=10%+4%=14%

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