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9.5. [1999 Sample 2:41] Company X and Company Y each have the same cost of capital and identical asset portfolios with a market value of
9.5. [1999 Sample 2:41] Company X and Company Y each have the same cost of capital and identical asset portfolios with a market value of 1000. Company X has zero debt. The expected return on equity for Company X is 15%. The firm value of Company Y is made up of 50% debt and 50% equity. The expected return on debt for Company Yis 9% Assuming no taxes, what is the expected return on equity in Company Y? (A) 9% (B) 15% (C) 21% (D) 27% (E) 33%
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