Answer:
11.72%
Explanation:
Find levered cost of equity using the formula below;
kL [tex]=kU +(1-tax)\frac{D}{E} (kU-kD)\\ \\[/tex]
whereby;
kU = unlevered cost of equity = 11% or 0.11 as a decimal
kL = levered cost of equity
D/E = debt-equity ratio = 0.4
tax = 40% or 0.40 as a decimal
Next, plug in the numbers to the formula above;
[tex]kL = 0.11 + [(1-0.40)*0.4*(0.11-0.08)]\\ \\ =0.11 + 0.0072\\ \\ =0.1172[/tex]
As a percentage, the King's levered cost of equity is 11.72%
