The Doll House has a pre-tax cost of debt of 7.9 percent and a return on assets of 11.7 percent. The debt-equity ratio is 0.45. Ignore taxes. What is the cost of equity? A- 13.41 percent B- 12.98 percent C- 12.47 percent D-12.03 percent E-11.87 percent

The Doll House has a pre-tax cost of debt of 7.9 percent and a return on assets of 11.7 percent. The debt-equity ratio is 0.45. Ignore taxes. What is the cost of equity? A- 13.41 percent B- 12.98 percent C- 12.47 percent D-12.03 percent E-11.87 percent

Financial Accounting

15th Edition

ISBN:9781337272124

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter14: Long-term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 1PEB: Brower Co. is considering the following alternative financing plans: Income tax is estimated at 40%...

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Question

The Doll House has a pre-tax cost of debt of 7.9 percent and a return on assets of 11.7 percent. The debt-equity ratio is 0.45. Ignore taxes. What is the cost of equity?

A- 13.41 percent

B- 12.98 percent

C- 12.47 percent

D-12.03 percent

E-11.87 percent

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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