Fuji Inc. is registered as a business in the film-making industry and has a required return on its assets of 12%
It can borrow in the debt market at 6%. If there are no taxes and M&M's proposition II holds, what is the cost of equity if there is 100% equity financing?
A) 12%
B) 13%
C) 14%
D) 15%
Answer: A
Explanation: A) Cost of Equity: Re = Ra + (Ra - Rd) × = 12% + (12% - 6%) × = 12%.
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