Verizon LTE Close 11. MM Proposition II states that 3:06 PM HW6 PDF 125 KB return on equity is positively related to leverage. 4 of 6 etun on equity is a linear function of the firm's debt to equity ratio. C. the risk to equity increases with leverage. D. the expected returm on equity is positively related to leverage, the required retum on equity is a linear function of the firm's debt to equity ratio, and the risk to equity increases with leverage. 12. A firm has a debt-to-equity ratio of 1. If it had no debt, its cost of equity would be 12 percent. Its cost of debt is 9 percent. What is its cost of equity if there are no taxes? A. 21 percent B. 18 percent C. 15 percent D. 16 percent 13. A firm is unlevered and has a cost of equity of 9%. What is the cost of equity if the firm becomes levered at debt-equity ratio of 2? The expected cost of debt is 7 percent (Assume no taxes.) A 15 percent B. 16 percent C. 14.5 percent D. 13 percent Email Save