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Mm-proposition ii-calculate the cost of equity

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MM-Proposition II-Calculate the cost of equity: Rosita's has a cost of equity of 17 percent and a pretax cost of debt of 6 percent. The debt-equity ratio is .60 now, and the tax rate is 34 percent.

(1) What is Rosita's cost of capital if there is no debt (R0-the unlevered cost of capital)?

(2) What is Rosita's cost of equity if his debt to equity ratio drops to 0.4?

Reference no: EM132516234

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