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Find the cost of equity of the company after the borrowing

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Reference no: EM132505408

Question 1: BNT is a 100% equity financed firm and its cost of equity is 10%. The manager of BNT plans to raise debt to increase the Debt/Equity ratio of the company to 0.5. The cost of debt is 5%. Assume the M&M theory (with tax) holds and the tax rate is 30%. The cost of equity of the company after the borrowing will be closest to:

Select one:

a. 8%

b. 11.75%

c. 5%

d. 10%

e. 7%

Reference no: EM132505408

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