Suppose you are considering investing in a project that will generate free cash flows of $$92,000$ in one year in a strong economy or $$65,000$ in a weak economy, with each outcome being equally likely. The initial investment needed for the project is $$60,000,$ and the project's cost of capital is $13\%.$ Assume that the risk$-$free interest rate is $6\%$ and capital markets are perfect.

Now assume that, to raise the funds for your firm's project, you are borrowing $$45,000$ at the risk$-$free rate and you will be covering the rest by issuing new equity. What is the cost of capital for the firm's levered equity in this case?

Question $10$ options:

$12\mathrm{.}52\%$

$16\mathrm{.}34\%$

$19\mathrm{.}00\%$

$25\mathrm{.}87\%$

None of the above