In: Finance
XYZ Co. has an unlevered cost of capital of 20%, a tax rate of 20% percent, and expected earnings before interest and taxes of $400,000 (in perpetuity). The company has outstanding bonds with a market value of $1 million, and a yield of 6%. What is the cost of equity?
A. 15.64%
B. 16.42%
C. 25.12%
D. 38.67%
E. none of the above