Calculate the cost of capital for an all-equity firm with equity of $12,500 and expected earnings of $1,900.Multiple choice question.16.5%6.6%14.4%15.2%

1. ### Break Down the Problem

We need to calculate the cost of capital for an all-equity firm. The formula to find the cost of capital (or cost of equity) is given by:

$\text{Cost of Capital} = \frac{\text{Expected Earnings}}{\text{Total Equity}}$

2. ### Relevant Concepts

Here:

• Expected Earnings = $1,900
• Total Equity = $12,500

3. ### Analysis and Detail

We'll substitute the values into the formula:

$\text{Cost of Capital} = \frac{1,900}{12,500}$

4. ### Verify and Summarize

Calculating the above expression:

$\text{Cost of Capital} = \frac{1,900}{12,500} = 0.152$

Converting this to a percentage:

$\text{Cost of Capital} = 0.152 \times 100 = 15.2\%$

Final Answer

The cost of capital for the all-equity firm is 15.2%.