11

OM 5 pts Question 11 Beauty Inc. plans to maintain its optimal capital structure of 40 percent debt 10 percent preferred stock and 50 percent common equity indefinitely. The required retum on each component source of capital is as follows debt8 percent preferred stock 12 percent common equity16 percent. Assuming a 40 percent marginal tax rate what after tar ate of retom must the firm earn on its investments if the value of the firm is to remain unchanged? 10.64 percent 12.00 percent 12.40 percent O 11.12 percent of the following EXCEPT