A firm has zero debt in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 40% debt. The...

A firm has zero debt in its capital structure. Its overall cost of capital is 9%. The firm is considering a new capital structure with 40% debt. The interest rate on the debt would be 4%. The corporate tax rate is 34%. In theory, what would its cost of equity capital with the new capital structure be? A. 10.3% B. 11.0% C. 11.2% D. 13.2%

uppose cost of equity is X(.40 * (4*(1-34%))) + (.60 * x) = 9%(.40 * (2.64%)) + (.60 * x) = 9%(.40 * (2.64%)) + (.60 * x) = 9%1.056% + (.60 * x) = 9%x = (9%-1.056%)/0.60x = 13.2%Answer is D...