Use the Information Below to Answer the Following Question(s)

Use the information below to answer the following question(s) .Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million) .The cost of equity capital is 5 percent, while the tax rate is 30 percent.Brandorf Company has profit centres in the following locations with the following data:

-A company's weighted-average cost of capital [WACC] was 9.6% last year.The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital.The tax rate is 35%.What is the company's cost of equity capital?

A) 6.00%
B) 6.25%
C) 6.50%
D) 9.25%
E) 12.00%

Correct Answer:

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