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Calculate the cost of capital for an all-equity firm with equity of $225,000 and expected earnings of $35,000.Multiple choice question.9.6%12.4%16.5%15.6%

Question

Calculate the cost of capital for an all-equity firm with equity of 225,000andexpectedearningsof225,000 and expected earnings of 35,000.Multiple choice question.9.6%12.4%16.5%15.6%

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Solution

The cost of capital for an all-equity firm is calculated by dividing the expected earnings by the total equity and then multiplying by 100 to get a percentage.

Here's the step-by-step calculation:

  1. Divide the expected earnings (35,000)bythetotalequity(35,000) by the total equity (225,000). The result is 0.15555555555555556.

  2. Multiply this result by 100 to convert it to a percentage. The result is 15.56%.

So, the cost of capital for this all-equity firm is 15.56%. The closest answer in your multiple choice options is 15.6%.

This problem has been solved

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