Question 32 Summerside Inc. (SSl) is financed with debt and equity capital. SSl's (before tax) cost of debt is 6% (EAR) and SSl's unlevered cost of capital is 18.7% (EAR). SSl's management plans to raise additional debt capital and to use these proceeds to repurchase an equal amount of its own stock. This transaction will change SSI's D/E-ratio from currently 0.2 to a new D/E-ratio of 0.3. The tax rate is 35% and interest payments are tax deductible. Assuming the cost of debt does not change, what would be the new cost of equity after the recapitalization? A) 21.18% B) 10.65% C) 24.70% D) 18.70% E) 22.51%