Cost of equity if the company tax rate

Question

Problem:

The company has a debt-to-equity ratio of 1.75. If it had no debt, its cost of equity would be 9%. Its cost of debt is 7%.

Required:

Question: What is its cost of equity if the company tax rate is 50%?

• 10.75%
• 7.73%
• 10%
• 12.5%

Note: Provide correct solution of the given problem with step by step calculations.