The DEF Company is planning a $64 million expansion. The expansion is to be financed by selling
$25.6 million in new debt and $38.4 million in new common stock.
The before-tax required rate of
return on debt is 9 percent and the required rate of return on equity is 14 percent. If the company is
in the 35 percent tax bracket, what is the firm's cost of capital?
A) 10.74% B) 8.92% C) 9.89% D) 11.50%
A
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