Problem:
The Corner Bakery has a debt-equity ratio of 0.62. The firm's required return on assets is 14.2 percent and its cost of equity is 16.1 percent.
Required:
Question: What is the pre-tax cost of debt based on M & M Proposition II with no taxes?
- 18.40 percent
- 10.68 percent
- 7.10 percent
- 11.14 percent
- 17.56 percent
Note: Show all workings.