Reference no: EM132791205

Xerox Corporation's tax rate is 21 percent. The firm's pre-tax cost of debt is 10 percent; the firm's debt-to-equity ratio is 1; the risk-free rate is 3 percent; the beta of the firm's common stock is 1.5; the market risk premium is 9 percent.

Problem 1: Using the CAPM paradigm, what is the firm's cost of equity capital?

Option 1: 33.33 percent
Option 2: 10.85 percent
Option 3: 13.12 percent
Option 4: 16.5 percent

Problem 2: Find the cost of capital if this firm were financed entirely with equity.

Option 1: 10.85 percent
Option 2: 12.52 percent
Option 3: 13.63
Option 4: 16.5 percent