Creative Learning Concepts is considering developing and distributing a new boar

Question

Creative Learning Concepts is considering developing and distributing a new board game for children. The project is similar in risk to the firm's current operations. The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund the firm's rapid growth. How should the firm determine its cost of equity? please explain reasoning
Answer

by adding the market risk premium to the after-tax cost of debt

by multiplying the market risk premium by (1 - 0.40)

by using the dividend growth model

by using the capital asset pricing model

by averaging the costs based on the dividend growth model and the capital asset pricing model

Explanation / Answer

by multiplying the market risk premium by (1 - 0.40)

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