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The unlevered Beta of a firm is 1.5. The manager is considering moving to a 30% debt capital structure. If risk free rate is 4%

The unlevered Beta of a firm is 1.5. The manager is considering moving to a 30% debt capital structure. If risk free rate is 4% and market risk premium is 9%, what would be the cost of equity of levered firm? Assume 35% tax rate.

Hint: Find the Beta of the Levered firm, then find the cost of equity of the Levered firm.

Select one of the following answers:

0.2722

0.1751

0.1359

0.2126

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