Pandit Swan Inc. (a major weapons manufacturer) has a capital structure with $10 billion in equity and $6 billion in debt. Its tax rate is .30; its levered beta is 1.5; the riskless rate is .02 and the expected equity risk premium is .06.

What is the cost of equity for a firm in this industry that has a capital structure with equal parts debt and equity?

		13.80%
		12.80%
		12.20%
		14.20%

The market will react unfavorably when a firm announces that it will issue new equity (i.e., a secondary equity offering: SEO).

True

False