What is the firm unlevered cost of equity capital

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1. USC Trees, Inc. has a debt to total market value ratio (i.e., D/V) of 7/12. Its WACC is 10 percent, and its cost of debt is 9 percent. The corporate tax rate is 33 percent. What is the firm's unlevered cost of equity capital?

a. 12.38%

b. 12.79%

c. 13.68%

d. 14.10%

e. 14.45%

2. USC Supply Corporation has a debt to firm value (i.e., D/V) of 4/9. The cost of equity is 14.5 percent and the aftertax cost of debt is 4.9 percent. What will the firm's cost of equity be if the debt-equity ratio is revised to 1, if we were in Case I of MM Theorem (i.e., no taxes, no bankruptcy costs et.al)?

a. 15.99%

b. 13.47%

c. 15.57%

d. 14.89%

e. Cannot determine with the information provided

Reference no: EM132052961

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