You are tasked with finding the cost of equity of company XYZ. The current risk-free rate is 2.6%, and the equity market return 8.6%.

The company is privately held, so you use its competitors asset Beta of 1.5 to calculate XYXs Beta. The competitor has a D/E ratio of 20%, XYZ has a D/E ratio of 40%. The tax rate is 25%. What is XYZs cost of equity?

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