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The debt-equity ratio of a firm is 2:1 and its WACC is 7%. If the pre-tax cost of debt is 8% and the corporate tax

The debt-equity ratio of a firm is 2:1 and its WACC is 7%. If the pre-tax cost of debt is 8% and the corporate tax rate is 40%, which of the following statements is true?

The cost of levered equity is 11.4%.

The cost of unlevered equity is 9.545%.

a. i only

b. ii only

c. Both of the above

d. None of the above

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