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Anderson's Furniture Outlet has an unlevered cost of capital of 10%, a tax rate of 34%,...

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Finance

Anderson's Furniture Outlet has an unlevered cost of capital of10%, a tax rate of 34%, and expected earnings before interest andtaxes of $1,600. The company has $3,000 in bonds outstanding thathave an 8% coupon and pay interest annually. The bonds are sellingat par value. What is the cost of equity?

a.

8.67%

b.

10.46%

c.

9.72%

d.

9.34%

e.

9.99%

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Transcribed Image Text

Anderson's Furniture Outlet has an unlevered cost of capital of10%, a tax rate of 34%, and expected earnings before interest andtaxes of $1,600. The company has $3,000 in bonds outstanding thathave an 8% coupon and pay interest annually. The bonds are sellingat par value. What is the cost of equity?a.8.67%b.10.46%c.9.72%d.9.34%e.9.99%

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