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

Anderson's Furniture Outlet has an unlevered cost of capital of 10%, a tax rate of 34%, and expected earnings before interest and taxes of $1,600. The company has $3,000 in bonds outstanding that have an 8% coupon and pay interest annually. The bonds are selling at 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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