Hubbard, an all$-$equity food manufacturing firm, is about to embark upon a

major diversification in the consumer electronics industry. Its current

equity beta is $1\mathrm{.}2,$ whilst the average equity $$ of electronics firms is $1\mathrm{.}6.$

Gearing in the electronics industry averages $30\%$ debt, $70\%$ equity.

Corporate debt is considered to be risk free.

Rm $=25\%,$ Rf $=10\%,$ corporation tax rate $=30\%$

What would be a suitable risk$-$adjusted cost of equity for the new

investment if Hubbard were to be financed in each of the following

ways?

A By $30\%$ debt and $70\%$ equity

B Entirely by equity

C By $20\%$ debt and $80\%$ equity

D By $40\%$ debt and $60\%$ equity