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Longmont Inc. has a cost of equity of 12% and a pre-tax cost of debt of 6%. The required return on the assets is 10%.

Longmont Inc. has a cost of equity of 12% and a pre-tax cost of debt of 6%. The required return on the assets is 10%. What is the firm's debt-equity ratio based on MM Proposition II with no taxes?

a. .65

b. .55

c. .50

d. .45

e. .60

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