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Jacque Ewing Drilling, Inc. has a beta of 1.3. If the risk-free rate of return is 8 percent and the expected return on the market is 12 percent, what is the firm's after-tax cost of equity capital if the firm's marginal tax rate is 0 percent

Respuesta :

Answer:

The firm after tax cost of equity would be 13.2%

Explanation:

The computation of the firm after tax cost of equity capital is shown below

As we know that

Required rate of return = Risk free rate of return + Beta × (market rate of return - risk free rate of return)

= 8% + 1.3 × (12% - 8%)

= 8% + 1.3 × 4%

= 8% + 5.2%

= 13.2%

Since the marginal tax rate is 0%

So, the firm after tax cost of equity would be 13.2%

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