Cactus has a cost of debt of $2\%,$ a debt$-$to$-$equity $($D$/$E$)$ ratio of $20\%,$ a levered cost of equity of

$20\%,$ and faces a tax$-$rate of $30\%.$ If the firm's managers decide to pursue a strategy of all$-$equity

financing, what would be the firm's $($unlevered$)$ cost of equity? Round to $0\mathrm{.}01\%$

$17\mathrm{.}79\%$

Correct

$17\%$

$17\mathrm{.}54\%$

Incorrect

Incorrect. $20\%=$ Unlevered beta Unlevered beta $-2\%$; Solve for Unlevered

cost of equity $=17\mathrm{.}79\%$

$18\mathrm{.}98\%$