Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely.The initial investment required for the project is $80,000, and the project's cost of capital is 15%.The risk-free interest rate is 5%.

Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate, then the cost of capital for the firm's levered equity is closest to:

Selected Answer:25%

Answers:15%

25%

95%

45%