What is the expected rate of return to equityholders if the firm has a tax rate of 35%, an interest rate on debt of 10%, a WACC of 15%, and a debt-asset ratio of 60%?
A) 12.50%
B) 21.25%
C) 22.50%
D)27.75%

Name: What is the expected rate of return to equityholders if the firm has a tax rate of 35%, an interest rate on debt of 10%, a WACC of 15%, and a debt-asset ratio of 60%? A) 12.50% B) 21.25% C) 22.50% D)27.75%
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Quizplus · Accepted Answer

0.15 = (1 - 0.60)R_e + 0.60(0.10)(1 - 0.35); R_e = 0.2775, or 27.75%

What Is the Expected Rate of Return to Equityholders If