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XYZ Inc is an Australian company operating in a pure imputation tax system. It is...

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XYZ Inc is an Australian company operating in a pure imputation tax system. It is currently financed entirely (100%) by equity and has a beta of 0.8. After examining its capital structure, XYZ finds that the optimal capital structure can be achieved at D/E ratio of 0.4. The before-tax cost of debt capital for XYZ at the optimal capital structure is 10% p.a. The risk-free rate and market risk premium are 5% and 7% p.a., respectively. If the statutory corporate tax rate is 30%, which of the following is closest to the cost of equity at the optimal capital structure (using the approach covered in the lecture)? 12.17% p.a. 10.69% p.a. None of the other answers. 12.84% p.a. 12.03% p.a

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