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10. Nopay Industries has a debt-equity ratio of 2. Its WACC is 11% and its cost of debt 11%. The corporate tax rate is 35%.

a. What is the firms cost of equity capital? (Ans. 0.187)

b. What is the firms unlevered cost of equity capital? (Ans. 0.1435)

c. What would the cost of equity be if the debt-equity ratio were 1.5? What if it were 1? What if it were 0? (Ans. 0.1678, 0.1485, 0.11)

Answers are in the brackets, please show solutions as to how answers are derived. Thanks.

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